Jefferies initiates DraftKings with a buy rating, sees 30% upside over the next year

Published Mon, Jun 22 20201:00 PM EDTUpdated Mon, Jun 22 20201:07 PM EDT

Investors should buy DraftKings stock as the political landscape becomes more favorable for the gambling industry and sports betting picks up post Covid-19, an analyst at Jefferies said Monday. Analyst David Katz initiated coverage of the sport-betting company with a buy rating and a price target of $55 per share. That target implies a 12-month upside of 30% from Friday's close of $42 per share. "DKNG is among the best positioned to capitalize on the growth of digital/sports wagering in the U.S., which we believe is in the initial stage of a decade-long acceleration," Katz said in a note to clients. "The political disposition toward expansion of sports betting and iGaming is increasingly favorable, the demand from consumers is proven and technology is advancing the execution." More than 20 states have legalized sports betting since 2018, when the Supreme Court struck down a law banning it at a federal level. Six of those states, including New Jersey, have legalized online sports betting. The sports betting momentum in New Jersey, coupled with DraftKings' established presence in the daily fantasy sports space, can increase the company's market share as other states allow for online betting, according to Katz. "The early market share positioning of 31% in NJ comes at a cost, but we believe a prospectively worthwhile one," he said. "1Q20's MUPs (Monthly Unique Payers) of 720,000 provides significant cross-selling opportunity between DFS, sports betting and iGaming more clearly than that of smaller players. The base of MUPs should continue to grow at 50% annually, albeit with expenditure, but investing in market share at the early stages of exponential growth in a market should be money well-spent rather than wasted." In the near-term, Katz expects DraftKings to benefit from the return of sporting events following the coronavirus pandemic given the "pent-up appetite" for sports. DraftKings shares have been on fire in 2020, surging more than 280% year to date. Most of those gains came after the company closed a merger with Diamond Eagle and SBTech on April 24. Since then, DraftKings is up more than 100% . —CNBC's Michael Bloom contributed to this report.

The entrance from the elevators, designed to resemble a tunnel entering a stadium, is pictured at the DraftKings office in Boston.

David L. Ryan | The Boston Globe via Getty Images

Investors should buy DraftKings stock as the political landscape becomes more favorable for the gambling industry and sports betting picks up post Covid-19, an analyst at Jefferies said Monday.

Analyst David Katz initiated coverage of the sport-betting company with a buy rating and a price target of $55 per share. That target implies a 12-month upside of 30% from Friday's close of $42 per share.