Benchmark raises DraftKings stock target to $45; maintains buy

On Tuesday, Benchmark analysts increased the price target for DraftKings Inc. (NASDAQ: NASDAQ:DKNG) shares to $45.00, up from the previous target of $41.00, while maintaining a "Buy" rating on the stock. Currently trading at $37.68 with a market capitalization of $18.5 billion, InvestingPro analysis indicates the stock is currently undervalued. The adjustment follows DraftKings’ first-quarter performance, which showcased strong user engagement and improved structural sportsbook hold. The company’s disciplined approach to promotional spending also contributed to its solid financial results.

DraftKings reported robust engagement in the first quarter, with user activity remaining high. The company benefited from an improved structural sportsbook hold, which is the margin that sportsbooks retain after paying out winnings. With trailing twelve-month revenue of $5 billion and impressive year-over-year growth of 23%, the company demonstrates strong market momentum. This positive development was, however, offset by customer-friendly outcomes during the March Madness college basketball tournament. The event saw a historically high win rate for favorites, which affected the company’s actual hold and subsequently limited the potential for revenue growth.

Despite the outcomes of March Madness, DraftKings’ financial results were close to consensus estimates. However, it’s important to note that these estimates had already been adjusted downward prior to the earnings release. The impact of the March Madness results was significant enough to prompt DraftKings to reduce its full-year revenue and AEBITDA (Adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization) guidance.

Management at DraftKings reaffirmed their commitment to achieving margin expansion and generating $750 million in free cash flow (FCF). Nevertheless, the revised growth targets reflect the tangible effects of the first-quarter events on the company’s financial outlook.

The analyst from Benchmark highlighted that despite the adjustments, the core trends for DraftKings remain positive. The company is experiencing a rising parlay mix and is seeing benefits from artificial intelligence-driven efficiencies and ongoing product innovation. With an overall Financial Health score of "FAIR" from InvestingPro and analysts projecting profitability this year, these factors are expected to position DraftKings to scale profitably through 2025 and beyond, as they continue to adapt and grow in the competitive online sports betting market. For deeper insights into DraftKings’ financial outlook and growth potential, access the comprehensive Pro Research Report, available exclusively on InvestingPro.

In other recent news, DraftKings Inc. reported its first-quarter financial results, revealing a 20% year-over-year increase in revenue to $1,409 million, although this figure fell short of some analyst expectations. The company also noted a modest EBITDA beat, surpassing consensus estimates by 4%. Despite these positive results, DraftKings adjusted its 2025 revenue guidance to a range of $6.2-6.4 billion, down from the previous $6.3-6.6 billion, and revised its EBITDA forecast to $800-$900 million, a decrease from the earlier $900-$1,000 million.

Analysts have responded to these developments with varied outlooks. Macquarie, TD Cowen, and Stifel all adjusted their price targets for DraftKings to $53, maintaining positive ratings. Guggenheim also revised its price target slightly to $60, keeping a Buy rating. Meanwhile, Goldman Sachs maintained a Buy rating with a target of $59, acknowledging the company’s resilience despite customer-friendly outcomes affecting revenue.

DraftKings’ management highlighted strong growth in Monthly Unique Payers, up 26% year-over-year, and improvements in product offerings and promotional strategies. The company is also focused on maintaining cost discipline and enhancing operational efficiencies, with analysts noting potential upside from these efforts. DraftKings has repurchased approximately $140 million in stock, demonstrating its capacity to return capital to shareholders.

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