DraftKings (NASDAQ:DKNG) has recently had a few issues, taking dings from plans to release new debt through convertible notes—though that actually recovered a bit once the company posted a larger offering—among other things, but now, the company is seeing some big new gains once more. Loop Capital recently offered up an assessment of DraftKings that made it look like the golden boy of the online gambling market.
Loop Capital's High Hopes
The biggest reason behind Loop Capital's renewed enthusiasm for DraftKings is found right in New York. The latest reports suggest that embattled governor Andrew Cuomo is poised to legalize mobile sports betting in the state, a move which should open up a lot of new business—not to mention plenty of new taxes—for the state.
Should such a move take place, Loop Capital notes, that could mean a huge opportunity for DraftKings as well. Loop Capital looks for the move to online gambling in the state to represent about $3 billion, based on the New Jersey sports betting market as well as iGaming GGR's operations. Since New York is the fourth-largest state in the US based on population numbers, and the only state in the top four that has some kind of legalized sports betting—though not online or mobile, yet—that represents a new potential major win for DraftKings. This is sufficient, at last report, to make DraftKings a top pick for Loop Capital, which should underscore broader investor interest as well.
A Broad Pool of Analyst Appeal
Loop Capital isn't the only analyst interested in DraftKings going forward, at least, that's the word from our latest research. After a bit of a slip three months ago, bullish sentiment is coming back into play and holding fairly stable.
Six months ago, the company had four “hold” ratings and 11 “buy” ratings to its credit. That came under a fairly dramatic shift three months ago as several new analysts entered the fray, bringing the totals up to eight “hold” and 17 “buy” ratings. Another major shift took place last month that ultimately swung the company back around in a bullish direction, with one “sell” rating, but six “hold” ratings and 20 “buy”. That's where we remain today, only slightly less bullish than we were six months ago, but with a lot more ratings involved overall.
The price target, meanwhile, has only gone up in the same interval. Six months ago, it stood at $48.80, and increased to $57.32 three months ago. A month ago, a much smaller increase took place, going to $59.93, but then a fairly large jump kicked in to today, giving us a price target of $65.96. Given that DraftKings currently sells at $70.50, there's some comparatively-new downside potential priced in.
A Recipe for a Winning Catalyst
This is actually a good time for new interest in DraftKings, for several reasons. First, the odds of DraftKings getting basically legalized in New York is actually quite good. With Manhattan real estate values—and the accompanying taxes therein—plummeting, the state desperately needs a new source of revenue. With businesses fleeing for Florida, among other places, Cuomo opening up sports betting is a fairly safe bet in its own right to get hands-on a new and fairly safe revenue stream. That opens up one massive new market for DraftKings, and if it's done any kind of soon, at a great time.
Timing is especially important for DraftKings right now, as we're going into March Madness, which basically kicks off a new year in sports. With baseball season coming up in fairly short order, football immediately to follow, and vaccine take-up rates on a steady climb, the chances of sports being interrupted this year like they were last year are fairly remote. That means further value-add for DraftKings; it's hard to engage in a lot of sports betting when there are no sports on which to bet.
That's going to mean there's a lot more on which to bet, which will make DraftKings that much more attractive as a result. Sure, this is a rising tide that will likely lift all boats, but the notion that DraftKings might get more lift than its numerous competitors, from FanDuel to Penn National Gaming (NASDAQ:PENN) isn't out of line.
Throw in the fact that DraftKings just took on a load of new debt and it's got the war chest needed to promote itself in a lot of its new markets. That could be just the combination necessary to spark a real catalyst, and send DraftKings up accordingly. If you're going to buy in on the mobile sports betting market, DraftKings may well be the best way to do that.
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