DraftKings stock upgraded to Overweight by JPMorgan

JPMorgan analysts have upgraded DraftKings (DKNG) stock from "Neutral" to "Overweight" and raised its price target from $26 to $37. Yahoo Finance's Seana Smith and Brad Smith break down what this upgrade could mean for the online betting company's market share and how it stands up to other sports betting companies.

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Video transcript

BRAD SMITH: DraftKings. We'll start things off there. DKNG ticker symbol, you're seeing it move higher by about 3.6% this morning. JP Morgan upgrading the sports betting company's rating from neutral to overweight.

The firm also raising their price target from $26 to $37. They're saying that the brand is seeing improved loyalty and higher amounts of betting money that the company retains here. They said, specifically, that they stand to benefit from a continued increase in market share from higher hold rates driven by a parlay mix and better risk trading, and improved loyalty from brand recognition, trust, and some product enhancements as well.

SEANA SMITH: It's certainly a pretty bullish note here from JP Morgan, when they're talking about where they see DraftKings stock going. They talk about how it is at an attractive valuation right now. The stock has been under pressure over the last several weeks since peaking back on July 20. Shares are down about 16% through the close of yesterday. So JP Morgan laying out a bullish case for DraftKings.

You talk about their first mover, second mover advantage here, when it comes to this space. The fact that they are among the leaders, when you take into account that they're number two behind FanDuel. And they still think despite the increase in competition that we're seeing from Fanatics, that we're seeing from ESPN Bet, they're saying that they still think that a name like DraftKings is going to be able to maintain much of their market share, and also compete with some of those bigger names, much like they have with Caesars in the past. So that price target here, when you take into account what JP Morgan is looking at at this point, their long-term price target obviously higher than what we are looking at today. The 2024 price target of $37.

That's replacing their previous target of $26 a share. And you take a look at the buy and hold sells on the street, it's a pretty bullish call overall when you take into account there has been some hesitation around some of these sports betting names. DraftKings has 22 buys on the street. Zero sells and 11 holds.

BRAD SMITH: And a question of where that hesitation comes from as well. And of course, you'd be right to think back to, well, is a consumer going to have the propensity to gamble to spend as much into a platform like a FanDuel, like a DraftKings, like an ESPN Bet product? And for right now, at least in the equity valuation, the way that JP Morgan is looking at this and continuing to really evaluate the opportunity going forward here, they're taking a look at this company and saying that they've traded at an equity value to EBITDA of about 18x on a two-year forward basis since the beginning of 2022, and that they're currently trading two turns below that.

So that's baked into some of the bullish sentiment here that you're hearing from the company. But continuing to think that this is an appealing sector with attractive same store and new market growth prospects. You're hearing from the firm here and their DraftKings upgrade.