DraftKings (NASDAQ:DKNG) stock is getting a much needed lift after Morgan Stanley issued constructive comments on the battered online sportsbook operator.
In midday trading, DraftKings is higher by more than 5% though that’s barely enough to dent an almost 76% decline over the past year. Hindered by lack of profitability and a market environment that doesn’t take kindly to such stocks, DraftKings hasn’t closed above its 200-day moving average since last September. Still, Morgan Stanley is positive on the gaming company, citing the familiar catalyst of total addressable market growth.
We forecast legal US sports betting & iGaming to increase from <$1.5 billion in 2019 to $21 billion in 2025 as more states legalize and spend per capita rises,” said Morgan Stanley equity strategist Michelle Weaver in a report to clients.
DraftKings stock is one of 45 on the bank’s list of high conviction North American equities.
Morgan Stanley a DraftKings Supporter
Sheer price action confirms it’s been difficult to be bullish on DraftKings in recent months, but Morgan Stanley is in that camp.
In March, analyst Thomas Allen reiterated an “overweight” rating on the stock with a $31 price target. That’s more than double where the shares currently reside. While acknowledging DraftKings is dealing with near-term losses, the analyst argues investors are being short-sighted and that companies making the transition to profitable from money-losing can deliver significant upside. Allen believes DraftKings can join that group.
The analyst adds that while the US iGaming and online sports betting markets will be eventually be “very large”, there will be a small amount of market share winners and that DraftKings will be one of those operators.
DraftKings joins Amazon (NASDAQ:AMZN), Chipotle (NYSE:CMG), Ferrari (NYSE:RACE) and Ross Stores (NASDAQ:ROST) as the consumer discretionary names on the Morgan Stanley high conviction list. The Boston-based sportsbook giant is the only gaming name in the group.
Waiting on DraftKings Earnings
The daily fantasy sports (DFS) behemoth reports first-quarter results on before the open of US markets on Friday, May 6. Analysts are expecting a loss of $1.24 per share. Over the past month, there’s been upward revision and two cuts to that estimate by analysts following DraftKings stock, according to Zacks Investment Research.
Investors will likely pay close attention to any update to 2022 guidance the company offers up on Friday. In February, the operator forecast 2022 sales of $1.85 billion to $2 billion on an earnings before interest, taxes, depreciation and amortization (EBITDA) loss of $825 million to $925 million.
That outlook doesn’t account for the company’s still pending launch in Ontario, Canada nor does it factor in sports betting going live in Maryland.
Investors will also likely be wanting an update on the acquisition of Tilman Fertitta’s Golden Nugget Online Gaming (NASDAQ:GNOG). Since that deal was announced last August, shares of both the suitor and target plunged, but Fertitta said it remains on track to close and that he’s committed to being a long-term DraftKings shareholder.
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