JPMorgan Analyst Upgrades DraftKings Shares Amidst Competition Concerns
DraftKings Inc., a popular online sports betting company, received an upgraded rating from JPMorgan analyst Joseph Greff. Despite concerns about increased competition in the industry, Greff changed his stance from bearish to neutral, taking advantage of a price drop following rival Penn Entertainment Inc.’s announcement of a partnership with Walt Disney Co.’s ESPN.
The announcement of Penn Entertainment’s rebranded sportsbook as ESPN Bet caused a negative reaction among DraftKings investors. They were worried about potential competition and increased promotional pressure from a smaller player in the online sports betting and iGaming sector. Greff saw this price weakness as an opportunity to revise his bearish stance and viewed the shares’ valuation as more balanced at current levels.
Although the upgrade reflects a more neutral rating, Greff noted that DraftKings’ valuation remains expensive at 18.2 times 2025 estimates for enterprise value to earnings before interest, taxes, depreciation, and amortization. Finding reasons for further upside from current levels could be challenging. However, Wells Fargo analyst Daniel Politzer suggested that DraftKings could recognize an EBITDA boost in the second half of 2023 as it concludes prior semi-exclusive marketing deals with ESPN. This potential increase may be counteracted by higher promotional spending to counter the anticipated blitz from ESPN Bet.
Another analyst, Matt Farrell from Piper Sandler, maintained a bullish outlook on DraftKings. He believes that long-time users have become attached to DraftKings due to their positive experiences with the product. Additionally, Farrell sees DraftKings as an industry leader, benefitting from its scale and product advantages over competitors.
Shares of DraftKings experienced a 9% decline in Wednesday morning trading. While investors remain cautious about the impact of new competitors entering the online sports betting market, analysts’ opinions on DraftKings’ prospects vary. The market will be closely watching how DraftKings responds to the increased competition and promotional efforts.
