Wells Fargo analyst Daniel Politzer and his team have decided to upgrade DraftKings Inc. shares, despite the stock already having risen about 180% this year. In an upgrade from equal weight to overweight, Politzer explains that he doesn’t want to miss out on a potential further rally in the stock.
Politzer’s decision is based on DraftKings’ impressive performance in its latest earnings report. He highlights the company’s adjusted earnings before interest, taxes, depreciation, and amortization (Ebitda) as a key factor. According to Politzer, the Ebitda is inflecting more quickly and steeply than expected. He believes the company has promising operating momentum.
Looking ahead, Politzer sees a path for DraftKings to achieve $1 billion in adjusted Ebitda by 2025. He notes that the company is on the verge of a major Ebitda inflection point. This is due to several factors, including improvements in structural hold, shorter payback periods, industry growth and consolidation, and reduced promotional expenses across the broader landscape.
As earnings estimates continue to rise, Politzer predicts that DraftKings shares will become more attractively valued. Accordingly, he has increased his price target on the stock from $28 to $37.
Additionally, Politzer is encouraged by DraftKings’ improved Major League Baseball (MLB) engagement. He believes this strategic advantage keeps users active throughout the year, not just during the football season. This could lower the company’s re-engagement costs when the National Football League (NFL) play begins in the third quarter.
Other catalysts for DraftKings’ shares include an investor day scheduled for November 14th, where new long-term earnings projections may be revealed. Furthermore, state launches in Kentucky this September and North Carolina in January could also drive the stock.
After a 5.8% gain on Friday following the latest earnings report, DraftKings shares remain relatively flat in Monday’s session.
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