It was about a month ago when we last got a look at DraftKings (NASDAQ:DKNG), and back then, it was looking like a pretty sound bet thanks to some exciting new deals that would put DraftKings service in a lot more potential bettors' hands. New developments have emerged that might make some a tad gunshy about buying in, yet at the same time, others have emerged to drive home the chance that a bet made on DraftKings itself might ultimately yield the best payoff.
The Odds Have Shifted in DraftKings' Favor
DraftKings saw a hefty surge in premarket trading, going up 3.1%, on the strength of some new analyst attention. One of the biggest bits of news in DraftKings' favor was word that Oppenheimer bolstered its price target on the company, improving the target outcome from $55 a share to $65. The recent setbacks the company has had in its share price, noted Jed Kelly with Oppenheimer, was enough to give new potential buyers an excellent entry point, which should help drive new interest in the stock that has done so well in recovering of late.
Meanwhile, Oppenheimer wasn't the only one. Needham's Brad Erickson started up coverage on DraftKings, putting a “buy” rating on the stock and a price target even more optimistic than Kelly's, weighing in at a target of $70. Erickson believes that DraftKings will represent one of the biggest opportunities to buy in on sports gambling, which is likely to take off in the US fairly soon and open up a market valued between $42 billion and $58 billion annually in the longer-term. Erickson notes that he company's current share price may be high, but given the amount of growth potential involved and the leading position in both platform and market share the company enjoys, there's still a lot of room to realize value from DraftKings.
Joining the cavalcade of recent calls of success, Credit Suisse Group started coverage on the company as “outperform”, and Benchmark upgraded its price target on the company to $60 per share.
Not All Good News
As is commonly the case, however, not all the news is good. The analyst picture isn't unanimous on this company's likelihood of success, with Deutsche Bank Aktiengesellschaft starting up coverage on DraftKings and rating it a “hold,” which joins a set of six other analysts that consider the company a “hold” according to our latest research. With 15 analysts in that same research asserting “buy”, however, the holds become little more than a footnote.
Further, there are some signs that DraftKings is taking advantage of its stock valuations to put out more stock. Quite a bit more stock, in fact, as recent reports saw DraftKings offer up 32 million new shares to drive some extra capital into the coffers. Half of that issue will come from the company itself, while the other half will come from current shareholders. That puts a pretty big dent in an otherwise impressive record, where insider trading was comparatively limited.
Our research on the matter noted that insiders hadn't sold a share since the chief financial officer, Jason Park, did so back in late June, joined by director Woodrow Levin and insider investor Paul Liberman. The total from the June sales, however, was well under 1.5 million shares sold, a far cry from the likely 16 million that will come from current shareholders.
Beating the Spread With New Opportunities
The sudden move to sell off a huge new number of stock shares will likely have some investors concerned. A big new pot of stock, after all, will likely serve to dilute the value of current shares and hurt the share price, at least in the short term. However, like Jed Kelly noted, this is a stock that's drawing a lot of attention in the market and bringing in plenty of new investors. It's not necessarily a bad idea to have something available for them to buy without having to watch the insider market like hawks waiting for something to drop.
]DraftKings is a front-runner in a market that's likely ready for growth. With sports coming back, people eager for a way to make the game more enjoyable, and states desperate for any kind of new revenue after extended shutdowns of their economies back in March, DraftKings bursting onto a lot of states' collective scenes should be a reasonable conclusion. This could be DraftKings' big opportunity, and buying in now will help ensure a piece of that opportunity later.
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