Shares of DraftKings (NASDAQ:DKNG) are in the green to start off the shortened trading week. However, the sports gambling company has lost over 30% of its value since 2022 began. On top of that, the company has received a slew of price target reductions from analysts the past month. Today, Wells Fargo analyst Daniel Politzer downgraded DKNG stock from “Equal Weight” to “Underweight” and reduced his price target from $41 to $19.
Wells Fargo Downgrades DKNG Stock
Politzer’s downgrade was influenced by a growing concern on profitability. For example, the analyst notes that DraftKing’s implied 2022 operating expense is expected to increase by 60% year-over-year (YOY). Meanwhile, revenue is only expected to grow 49% YOY. Politzer also doubts DraftKing’s internal estimate to be earnings before interest, taxes, deductions and amortizations (EBITDA) positive by Q4 of 2023. Based on expected expansion costs, the analyst believes DraftKings won’t be EBITDA positive until 2025.
Furthermore, Politzer added that his downgrade was “company specific,” and that he prefers other names like Caesars Entertainment (NASDAQ:CZR) and Flutter Entertainment (OTCMKTS:PDPYF) at current levels.
According to TipRanks, Politzer has a 47% success rate and an average return of 6.4% for a one-year period. With his downgrade in mind, let’s take a look at how the rest of Wall Street feels about DraftKings.
3 More Analysts Weigh In on DraftKings
- Guggenheim has a price target of $56. Analyst Curry Baker believes that DraftKings’ 2022 full-year revenue will reach $1.278 billion, which is on the high end of DraftKings’ guidance of $1.24 billion to $1.28 billion. However, the analyst lowered his expected 2022 EBITDA to -$568 million from -$429 million. This is due to the sports gambling company spending more money on promotion and marketing costs.
- Needham has a price target of $32. Analyst Bernie McTernan lowered his price target from $46 last week, but maintained a “Buy” rating. The analyst believes that in order for DraftKings to achieve positive contribution profit, it must retain subscribers and spend less on marketing. However, the analyst also expects DraftKings to achieve break-even EBITDA by the end of 2024. By the end of 2026, McTernan expects DraftKings to post EBITDA of at least $900 million. Therefore, the analyst’s price target is based on an 18x multiple of expected 2026 EBITDA.
- Morgan Stanley has a price target of $31. Analyst Thomas Allen believes that the U.S. sports betting and iGaming sector will have a total addressable market (TAM) of $20.6 billion by 2025. Furthermore, the analyst expects DraftKings to have a high market share in the industry, with “24% in online sports betting (OSB) and 21% in iGaming in 2025.” On the other hand, Allen also points out several risks, such as “higher losses, greater competition and lagging product innovation.”
On the date of publication, Eddie Pan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.