Morgan Stanley Thinks Forecasted Buyback Will Boost DraftKings’ Shares

Earlier in the month, Morgan Stanley‘s analyst, Stephen Grambling, and his colleagues spoke about DraftKings’ impressive market growth and well-balanced promotional environment, giving the US-based vertically integrated sports betting operator a favorable outlook. 

Now, analysts from the same NYSE-listed leading global financial services firm are projecting a strong rest of the year for the operator, in anticipation of the important stock buyback announcement that will come later in the year. 

The announcement is expected to awaken investor interest and give stock performance a boost.

A fresh note from Morgan Stanley highlighted DraftKings’s potential to prove the strength of its cash flow and improve shareholder returns.

Strategic Capital Structuring

While discussing the operator’s first quarter results for 2024, chief executive officer Jason Robins threw light on their interest in optimizing the company’s capital structure while making sure shareholder returns reach a maximum.

According to Morgan Stanley projections, DraftKings could generate around $450 million in 2024, excluding the recent acquisition of Jackpoket, a figure that would go over the company’s guidance of $400 million.

The multinational investment bank also spoke about DraftKings’ transition “toward more sustainable free cash flow generation,” something they anticipate would stimulate investors to concentrate on the allocation of capital and the generation of cash flow instead of simply adjusting EBITDA.

The same analysts also believe investors will decide to apply the same type of focus on FanDuel and Flutter Entertainment.

Buyback Announcement to Trigger Substantial Stock Appreciation

Morgan Stanley’s recent report also discussed the positive impact of announcements regarding the buyback of stocks on growth tech companies like Meta, Alphabet, Spotify, Uber, and Block. 

Analysts discovered a 25% boost on average in the price of shares over the following four quarters as a result of the respective announcements. 

Morgan Stabley believes similar effects will stem from DraftKings’ upcoming stock buyback authorization announcement, going over the FY24 free cash flow, and potentially amounting to more than $1 billion.

The operator could also generate more than $3 billion in cumulative operating free cash flow between FY24 and FY26. 

This would lead to a 10% drop in share count by the year 2026. Morgan Stanley also took the opportunity to once again make its “overweight” rating public by projecting a 31% growth to the operator’s price target of $51.

In the past year, DraftKings’ stock price has gone up by 69.47%. In the last two years, the company’s shares rose by 244.78%.