Wall Street Bulls-Up Further on DraftKings (DKNG) Following Investor Day

DraftKings (NASDAQ: DKNG) stock is trading 4% higher in pre-open Wednesday after several firms raised their price targets following yesterday's Investor Day.

Goldman Sachs, Jefferies, and UBS are some of the major names that raised their price objectives on DKNG today. Overall, at least six firms raised their price target today.

Jefferies analyst David Katz raised the PT to $75.00 per share from $73.00 as Investor Day showed continued strength and proliferation of the digital gaming business. His three key takeaways from the event are:

1) Higher than expected DFS revenue outlook of $400M vs. our $249M in 2023,

2) The higher TAM in iGaming and slightly higher in OSB. The growth trajectory beyond 2023 is also reflected,

3) Partially offset by incrementally higher share through 2021 and our estimate of moderating ongoing dilution.

DKNG estimates US OSB and iGaming markets at 100% legalization to be $22 billion and $40 billion, respectively, which is significantly higher from $18 billion and $21 billion communicated last year. The higher estimates are driven by a better than expected ramp, especially for iGaming.

“Note that Mgt uses NJ, UK and Australia as proxies based on GDP and population and believes it has taken a conservative-leaning approach. There could be further upside as several states have seen higher run-rated revenue per capita than NJ. In addition, DKNG now includes a $5B-8B TAM in Canada for OSB and iGaming combined,” Katz wrote in today’s memo sent to clients.

Despite a positive outlook shared by the company’s management, Katz sees these estimates as “light” given that they “exclude the implications of in-game wagering, which we expect to be especially productive in the US market.”

“We currently estimate US sports betting, mobile and retail combined, to be a $19B market, while iGaming could reach a similar size with fewer states legalized. In addition, the company indicated there could be international expansion at some point in the future, which we have not included in our forecasts.”

The company also indicated lower-than-expected customer acquisition costs (CAC) last year, while sign-ups came in better-than-expected.

Rosenblatt analyst Bernie McTernan has been more generous than his colleague Katz as he raised the PT to $81.00 per share from $72.00 to reflect higher medium-term adj. EBITDA estimates.

“We continue to see potential upside from supportive legislation over the next few years. Our confidence is growing that revenue will convert to profits over time as DKNG is demonstrating attractive customer lifetime values, although it is still early days. Separately, we continue to expect DKNG to benefit from the convergence of sports betting and media, most recently highlighted by their agreement with DISH,” the analyst wrote in a note sent to clients today.

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