UBS analyst sees more than 40% upside from current levels with new $39 target price
DraftKings Inc. shares have more than doubled so far this year, but UBS analyst Robin Farley thinks they can surge another 45%.
“We expect [DraftKings] to continue driving structural improvement from improved parlay mix and stronger customer retention/engagement,” she wrote in a note to clients late Friday as she lifted her price target on the stock to $39 from $30. These trends can help the company boost its “hold,” or the portion of betting money it retains, and gain market share.
One catalyst for the company is the upcoming National Football League season, as Farley notes that DraftKings DKNG, +2.71% wasn’t operational last NFL season in Massachusetts and several other states where it now has a presence.
In addition, she isn’t too concerned about competition from Penn Entertainment Inc. PENN, -0.35% and Walt Disney Co.’s DIS, -0.09% ESPN, which announced earlier in August that Penn would be rebranding its sportsbook as ESPN Bet.
DraftKings had been spending about 5% of its annual marketing budget, or $40 million to $50 million, on ESPN, according to Farley, “so we can assume they are sourcing less than 5% of players from ESPN or they would likely have raised that marketing spend in the last few years, but they haven’t.”
“The point is that if $45 [million] in marketing on ESPN yielded less than 5% of new players for a market share player in the 30-40% range, then Penn’s $150 [million] marketing spend on ESPN wouldn’t necessarily get to market share out of the single-digit range,” she added.
Instead, she notes that DraftKings’ “view of competitive market share in general is that it is the result of offering players a compelling product, and they have competed very effectively against well-known brand names.”
Farley has a buy rating on DraftKings shares, which are up nearly 3% toward the end of Monday’s session.