DraftKings Receives Boost from Morgan Stanley’s Favorable Outlook

Morgan Stanley has highlighted DraftKings as a top pick within the North American gaming sector, indicating a favorable outlook for the sports betting giant. This positive sentiment arises despite recent challenges, such as the new tax legislation in Illinois. 

DraftKings Shows Resilience Amid Tax Challenges in Illinois

Analyst Stephen Grambling and his team at Morgan Stanley are optimistic about the company’s prospects, citing strong market growth and a balanced promotional environment as key drivers.

DraftKings has shown resilience by maintaining its 2024 guidance even after Illinois implemented a graduated tax rate on sports wagering. This new tax regime, which takes effect on July 1, imposes an average rate of 36.5% on major operators like DraftKings and FanDuel, up from the previous 15%. 

Despite this, the company is expected to continue its positive trajectory. Grambling noted that the lack of similar tax hikes in other states, especially New Jersey, could serve as a catalyst for the stock.

In terms of financial projections, Morgan Stanley has adjusted its estimates to reflect the latest market trends and the recent acquisition of Jackpocket. The updated forecast sees DraftKings’ adjusted EBITDA for fiscal years 2024, 2025, and 2026 at $570 million, $1.311 billion, and $2.108 billion, respectively. The firm maintains a 12-month price target of $51 for DraftKings, based on a combination of enterprise value and discounted cash flow models.

DraftKings’ Stock Gets Boost from Analyst Endorsement

DraftKings’ stock received a boost from this endorsement, rising 2.06% in premarket trading to $37.65. The Seeking Alpha Quant Rating also signals a “Buy” for the stock, reinforcing investor confidence.

Beyond the immediate financial outlook, there is speculation about potential capital returns to shareholders, possibly in the form of stock buybacks or dividends. Such an announcement could accompany the company’s second-quarter results, which are to be announced on August 1.

The broader market context also plays a role in DraftKings’ appeal. The stock market has been volatile, with many gambling stocks experiencing declines. However, large players like DraftKings and Flutter Entertainment have demonstrated resilience. Despite recent setbacks, including wider-than-expected losses, these companies continue to attract investor interest due to their market dominance and growth potential.

Grambling and other analysts, including David Katz from Jefferies, are bullish on DraftKings. Katz recently included DraftKings in his “Franchise Picks,” underscoring the potential for significant EBITDA growth and further state legalizations, such as in Texas, as key growth drivers. He projects the stock could reach $54.