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If you own one online gaming stock for the NFL season, make it this one, analyst says
LV REVIEW JOURNAL SUBSCRIPTIONAs a new football season kicks off, gambling-related stocks are reemerging as an interesting play for investors looking to get into the game. One stock in particular has caught the attention of a Wall Street analyst who says this online gambling company could be a big score.
Chad Beynon, a senior gaming analyst at Macquarie Capital, believes DraftKings is the top online gambling stock to own as the National Football League regular season prepares to start on Sept. 5.
Boston-based DraftKings was trading around $35.33 per share as of Tuesday’s market close. Beynon and the team at Macquarie placed a target price of $50 per share on the stock.
“We see DKNG best positioned for near-term upside from favorable NFL game outcomes, higher structural hold, and general (online sports betting)/iGaming growth momentum,” Beynon wrote in a Aug. 26 research note.
Macquarie’s research says North American online sports betting stocks are up 18 percent year-to-date, on average. But DraftKings is lagging behind the market in 2024, which is where the opportunity for the stock comes into play, the analysis suggests.
“Given current (third quarter) hold/growth trends, an easier YoY hold comp in (the fourth quarter), and recently recalibrated ‘24 guidance (link), we think DKNG is well positioned to exceed expectations in (the second half of the year),” Beynon said.
DraftKings still looking up at FanDuel
After failing to generate an operating profit for years, DraftKings posted its first profitable quarter as a publicly-traded company in the second quarter of this year.
The company nearly squandered its market momentum when it announced a customer surcharge on winning bets would be implemented in 2025 to counter the cost of operating in high-tax states, such as New York and Illinois. A near-unanimous backlash to the proposal and the absence of other operators joining the cause resulted in DraftKings abandoning the idea altogether.
DraftKings and its chief rival, New York-based FanDuel, control the majority of the domestic online gambling market. According to public data, the two companies account for roughly 70 percent of the online sports betting handle (total amount wagered) in the United States and more than 60 percent of reported internet gambling revenue.
Based on recent valuations, DraftKings has a $17 billion market capitalization. FanDuel’s parent company, Flutter Entertainment plc, recently went public in the U.S. and has a market cap of $22.8 billion.
Neither DraftKings nor FanDuel offer online gambling products in Nevada. The state’s in-person registration requirement all but precludes the two digital operators from having a real presence in the Silver State. Boyd Gaming’s Fremont casino-hotel in downtown Las Vegas has a FanDuel-branded sportsbook that is managed by the local gaming operator.
DraftKings employs nearly 1,000 people at its Southern Nevada office at the Uncommons mixed-use development in the southwest valley. The Las Vegas office primarily handles customer service calls with a handful of traders (oddsmakers) and a legal department also on-site.
Stocks with ties to Las Vegas casinos
MGM Resorts International is the only gambling-related stocks with a brick-and-mortar presence in Las Vegas with a market cap of more than $10 billion. MGM — which operates an online gambling product through a 50/50 partnership with Entain plc — has a listed market cap of $11.8 billion.
At the close of business on Tuesday, MGM Resorts was trading at $38 per share. Macquarie gave MGM a target share price of $55.
Macquarie’s Aug.26 research note wonders whether MGM’s recent move to offer a single digital wallet in every state where the BetMGM product is available will provide a “material boost.”
The only other notable Las Vegas-related stock listed by Macquarie to “outperform” in 2024 is Caesars Entertainment. The Reno-based casino operator has a market cap of $7.9 billion. Macquarie placed a target price of $52 per share on Caesars Entertainment stock, which closed Tuesday trading at $37.80 per share.
