Morgan Stanley’s Intervention Turned the DraftKings’ Tide

A stock rating upgrade by Morgan Stanley saw DraftKings stock price reverse its negative trend that brought its share price from $64.50 to less than $20 in the space of four months.

Is It ‘Too Big an Opportunity?’

Morgan Stanley upgraded the Boston-based gaming operator’s stock rating from Equal-Weight to Overweight in a report titled “Too Big an Opportunity to Ignore: Upgrade to Overweight.”

The intervention by the prominent investment bank signaled a buying opportunity for traders and medium- and long-term investors and the market reacted accordingly: DraftKings caught a break as its share price jumped by nearly 13% to $21.85.

“While we and the market have been focused on near- to medium-term profit concerns, we believe at the current price one should not ignore that DKNG is a leading market share player in what will be a very large profitable market.”

Thomas Allen, Analyst, Morgan Stanley

DraftKings, which is yet to turn a profit, saw its stock plummet by more than 65% in the last 12 months, with over 30% in this year alone but Allen stated the selloff had gone too far. He recommended Buy until the price is below $31 predicting DraftKings could grow its revenue by 63% this year and by 38% per year in 2023, 2024 and 2025, while US gambling could grow to $21 billion by 2025.

Analysts Split between Buy and Hold

The majority of other industry analysts are not sharing the same upbeat outlook, split between Buy and Hold. 19 out of reported 32 covering the stock signal a Buy or Overweight, 12 suggest a Hold and 1 believes the stock would continue to go down recommending Sell.

Technically, DraftKings’ share price is far from being out of the woods, as the latest rally is a correction on the last down leg from January 11 and has yet to test the resistance line spanning from November 1. History suggests such verbal interventions usually have a short-term effect on the markets as the prevailing sentiment brings the price down eventually.

A more important question is whether Morgan Stanley has other incentives to intervene and turn the tide. A quick look at the list of the investment bank’s shareholders and DraftKings shareholders reveal names with significant shareholdings that are present on both lists and raises serious ethical issues.