On Tuesday, Deutsche Bank maintained a Hold rating on shares of DraftKings Inc. (NASDAQ: NASDAQ:DKNG), with a steady price target of $35.00. The firm's assessment suggests caution due to increasing regulatory risks and a likely shortfall in the second quarter of 2024 (2Q24) earnings relative to company guidance. DraftKings is anticipated to face a challenging comparison in the second half of 2024 (2H24) within the industry.
The bank expects DraftKings to experience a year-over-year decline in gross margins for 2Q24, attributing this to several factors. These include elevated customer acquisition costs, lower than anticipated online sports betting (OSB) hold compared to structural hold guidance, and a greater proportion of gross gaming revenue (GGR) coming from jurisdictions with higher tax rates. Additionally, DraftKings has seen a decline in market share in both the OSB and iCasino segments sequentially in 2Q24 to date, although the company has demonstrated better promotional discipline.
Deutsche Bank has adjusted its forecast for DraftKings' 2Q24 adjusted EBITDA to $134 million, down from the previous $175 million estimate (with the company's guidance being approximately $150 million). The firm's revised forecast for the second half of 2024 also reflects modest reductions to account for the tax changes in Illinois, which are expected to significantly impact the company's financial buffer built into the latter half of the year's guidance.
The valuation of DraftKings at approximately 18 times Deutsche Bank's 2025 adjusted EBITDA estimate is deemed reasonable, considering the expected growth trajectory beyond 2025. However, the firm anticipates that additional questions may arise, casting doubt on the feasibility of reaching the long-term adjusted EBITDA goal of roughly $2.1 billion over the next 12 to 18 months. Following these revisions, Deutsche Bank's stance remains at Hold with the price target unchanged at $35.00.
In other recent news, DraftKings has reappointed Erik Bradbury as its Chief Accounting Officer, marking his return with a significant restricted stock unit award. In analyst news, Morgan Stanley maintained its Overweight rating and a $51.00 price target on DraftKings shares, reestablishing its position as their Top Pick in the North American Gaming & Lodging sector.
While, Susquehanna International Group, maintained a positive rating lowering its shares target to $49 from $56, reflecting stronger than anticipated industry growth and the recent acquisition of JackPocket. The firm's revised 2024 revenue and EBITDA projections stand at $5.03 billion and $485 million respectively. Stifel has also adjusted its price target for DraftKings shares to $50, due to recent legislative developments in Illinois.
BMO Capital, on the other hand, maintained an Outperform rating and a stock price target of $54.00 for DraftKings, showing confidence in the company's long-term prospects despite potential challenges from new tax legislation in Illinois. These are recent developments in the company's trajectory.
InvestingPro Insights
For investors seeking a deeper analysis of DraftKings Inc. (NASDAQ: DKNG), recent data from InvestingPro provides a clear picture of the company's financial health and market performance. With a market capitalization of $18.41 billion and a significant revenue growth of 57% over the last twelve months as of Q1 2024, DraftKings is demonstrating robust top-line expansion. Despite a negative P/E ratio, which reflects the company's current lack of profitability, analysts are optimistic, anticipating sales growth in the current year and predicting that the company will turn profitable this year.
InvestingPro Tips highlight the stock's volatility, which may appeal to certain investors looking for dynamic market movements. Additionally, while DraftKings does not pay dividends, the company has had a high return over the last year, indicating strong market performance. With more detailed insights available, investors can explore over ten additional InvestingPro Tips for DraftKings by visiting https://www.investing.com/pro/DKNG. For those interested in a subscription, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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