Posted on: August 26, 2024, 04:29h.
Last updated on: August 26, 2024, 04:29h.
DraftKings (NASDAQ: DKNG) is the best online betting stock to own into football season, according to an analyst that covers the company.
In a note to clients today, Macquarie analyst Chad Beynon highlighted the familiar seasonality associated with sports betting equities such as DraftKings. Simply put, football is the most wagered on sport in the US and the arrival of the season often generates upside for online sports betting wagering equities, including DraftKings. He noted the operator is likely to improve upon some of the hold issues that have hampered it in previous fourth quarters.
While history has shown that holding the stock for the two months leading up to opening NFL week has been most profitable, we think much of the 4Q stock softness in recent years can be attributed to DKNG’s hold falling 50-100bps below market expectations for September through December,” wrote the analyst. “Given current 3Q hold/ growth trends, an easier year-over-year hold comp in 4Q, and recently recalibrated ’24 guidance, we think DKNG is well positioned to exceed expectations in 2H.”
Beynon reiterated an “outperform” rating on DraftKings with a $50 price target, implying upside of more than 42% from today’s close.
More Football Catalysts for DraftKings
Shares of DraftKings are off 3.33% over the past month, potentially a sign that football seasonality isn’t yet baked into the stock. The 2024 college football season commences in earnest this Saturday with the start of the NFL following on Thursday, Sept. 5.
The more compelling potential catalyst for DraftKings and its peers is the expectation that this year, bettors will wager on more NFL contests than they have in years past. Overall football handle will increase by virtue of a record number of states permitting sports wagering, but per bettor figures could rise as a result of operators’ larger betting menus, including in-game wagering and same-game parlays.
Those are among the reasons online is widely viewed as the long-term growth driver of the gaming industry. The possibility that more states will embrace iGaming bolsters that thesis.
“Thus, we view any pullback in the sector from consumer sentiment, regulatory headlines, or low hold as a long-term buying opportunity, with much of the sector now generating positive free cash flow at reasonable valuations,” added Beynon.
Other Football Season Issues to Monitor
Beyond the impact football season could have on shares of DraftKings, there are some other operator-specific issues to monitor as America’s most popular sport unfolds in the coming months. Those include the ability of smaller contenders such as Fanatics and Penn Entertainment’s (NASDAQ: PENN) ESPN Bet to make headway against larger rivals FanDuel and DraftKings.
Some analysts and investors believe the 2024 football season is make or break time for ESPN Bet while others are curious to see how Fanatics can deal with what could be an elevated promotional spending environment.
“1) Do Missouri residents vote in favor of legalizing OSB in Nov (10% proposed tax rate)? 2) Does DKNG close the gap between its handle and GGR market share? 3) Will Fanatics hold on to its recent market share gains during the promotionally high NFL period ? 4) Will ESPN BET monetize its active user base to increase GGR share and how will its NY launch go? 5) Will BetMGM get a material boost from having one digital wallet across states?,” concludes Beynon.
