Buy this sports gambling stock for 24% upside on new market penetration, UBS says

DraftKings’ penetration into new states could add to an already explosive year of growth for the stock, according to UBS. The firm upgraded the stock to buy from neutral on Monday, with a $30 price target up from $19. The new price target represents more than 24% upside compared to DraftKings’ $24.11 close on Friday. So far this year, stock in DraftKings has been on fire with a 112% gain. UBS analyst Robin Farley said the company’s ability to capture market share in new states is enough to fuel further growth in the stock. DKNG YTD mountain DraftKings stock. “Investors may wonder if the stock is expensive given that DKNG is now up +112% YTD, but we believe further upside is possible given the faster ramp in new states,” Farley said. UBS expects DraftKings’ gross margin to improve by 50 basis points year-over-year in 2023 to 39.3%, and potentially grow to more than 40% in 2024. A basis point is 0.01 percentage points. Shares rose more than 3% in premarket trading. Farley added that the company’s compounded annual growth rate can similarly explode, driven by a higher structural hold and growth within existing user usage on the platform. “We believe DKNG can deliver a +20% revenue [compound annual growth rate] from ’23E to ’26E. We are increasing our ’23 revenue estimate to $3.19B from $2.91B prior, in line with company guidance of $3.135- 3.235B and we see DKNG delivering a +20% revenue CAGR through 2026. Our ’26 revenue estimate of $5.54B is above Street’s $5.36B,” Farley said. — CNBC’s Michael Bloom contributed to this report.

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