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On Thursday, Guggenheim Securities adjusted its outlook on DraftKings Inc. (NASDAQ: NASDAQ:DKNG) shares, lowering the price target to $61 from the previous $62, while still maintaining a Buy rating on the stock. With the current stock price at $35.84 and showing a notable 10.62% return over the past week, according to InvestingPro data, the revision comes as a response to the unexpected results in the latter part of the first quarter, primarily due to the outcomes of the Men's NCAA Tournament.
DraftKings experienced headwinds in the back half of the quarter, notably with the strong performance of heavy favorites in the tournament. The Final Four's lineup of all number one seed teams, along with an Elite Eight that included three number two seeds and one number three seed, led to a lower than usual hold percentage for DraftKings. The last week of March data from New York showed a hold of approximately 0.7%, which is indicative of the impact from the tournament's results.
Despite the challenges faced during the quarter, DraftKings had reported a positive hold through the first six weeks, including the Super Bowl, with January holding at 11% and February through the 11th at 13%. The company has demonstrated strong revenue growth, with InvestingPro data showing a 30.07% increase in the last twelve months to $4.77 billion. However, Guggenheim has now adjusted its first-quarter revenue forecast for DraftKings to $1.465 billion, down from the prior estimate of $1.501 billion. Similarly, the expected EBITDA has been revised to $124 million from the previous forecast of $161 million.
Looking ahead, Guggenheim has also modified its projection for DraftKings' 2025 adjusted EBITDA to $932 million, a decrease from the earlier estimate of $985 million. This is still within the range of the company's own guidance of $900 million to $1 billion. The firm noted that despite growing macroeconomic concerns, consumer demand for DraftKings' offerings does not appear to have materially changed at this stage.
The new price target of $61 is based on the updated estimates, reflecting a nuanced view of the company's performance and the broader market conditions influencing the sports betting industry. With analyst targets ranging from $35 to $75 and a beta of 2.15 indicating higher volatility than the market, InvestingPro analysis suggests the stock is currently undervalued. InvestingPro subscribers have access to detailed valuation metrics, comprehensive financial health scores, and 8 additional ProTips for DKNG, along with an in-depth Pro Research Report available for this popular gaming stock.
In other recent news, DraftKings Inc. has been the focus of several analyst evaluations and company developments. Needham reiterated its Buy rating with a $65 price target for DraftKings, despite lowering its first-quarter adjusted EBITDA estimates by $70 million due to March Madness sports outcomes. Meanwhile, Citizens JMP maintained a Market Outperform rating, with a price target of $57, noting the stock's current trading value as a buying opportunity despite a significant drop in share value following the latest earnings report. Citizens JMP also reaffirmed its Market Outperform rating with a $60 price target after meeting with DraftKings' executives, expressing confidence in the company's long-term business trajectory.
Benchmark analysts also maintained a Buy rating, setting a $51 price target, citing a notable rebound in betting activity, particularly in NBA betting volume. On the operational front, DraftKings announced new initiatives to boost responsible gaming, including the renewal of its State Council Funding Program and the launch of a national advertising campaign. The company has allocated over $500,000 to various state problem gambling councils and has enhanced its My Stat Sheet tool to promote informed gaming choices. These developments reflect DraftKings' ongoing efforts to support responsible gaming practices while navigating the competitive sports betting industry.
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