On Friday, Deutsche Bank (ETR:DBKGn) adjusted its outlook on DraftKings Inc. (NASDAQ: NASDAQ:DKNG), increasing the price target to $33 from the previous $32, while sustaining a Hold rating on the stock. The adjustment reflects a cautious optimism about the company's future financial performance.
The firm's analysis indicates that DraftKings is considered a narrative or theme stock, which means its market performance can be quite volatile, shifting rapidly based on changing market sentiments. The analyst expressed a reluctance to recommend such unpredictable stocks.
DraftKings' valuation is based on projections for the year 2025, with the stock trading at 21.5 times the estimated adjusted EBITDA, which falls within the company's own guidance range. Additionally, the firm anticipates a roughly 4% free cash flow (FCF) yield on its discretionary free cash flow estimate for 2025.
Despite raising the price target, Deutsche Bank's stance remains cautious due to the less-than-ideal performance observed in 2024. The current valuation suggests that investors are pricing the stock with high expectations for 2025, a perspective that the firm seems to consider optimistic given recent performance trends.
The Hold rating indicates that Deutsche Bank advises investors to maintain their position in DraftKings shares without increasing their stake, implying that the stock's current market price is expected to provide a fair return relative to the risks involved.
In other recent news, DraftKings Inc. has seen several significant developments. The company reported third-quarter earnings that exceeded consensus estimates, demonstrating a robust financial performance. The earnings per share was recorded at ($0.17), a notable improvement from last year's ($0.35), surpassing consensus estimates by $0.07. However, the company's revenues of $1.1 billion fell slightly short of expectations by $16 million.
CFRA upgraded DraftKings from Buy to Strong Buy, reflecting confidence in the company's growth and performance. Piper Sandler also expressed confidence in DraftKings, raising the stock's price target to $53.00, while maintaining an Overweight rating on the shares. These upgrades come despite DraftKings' third-quarter revenues and adjusted EBITDA falling short of market expectations.
DraftKings' operations have expanded considerably, now live in 25 states plus Washington D.C., covering nearly half of the U.S. population. The company reported a 55% year-over-year increase in monthly active users to 3.6 million and a 10% increase in average revenue per user.
DraftKings also revised its full-year 2024 earnings guide downwards due to unfavorable sports outcomes early in the fourth quarter of 2024. Despite this, the initial full-year 2025 revenue guidance, with a midpoint between $6.2 billion and $6.6 billion, surpasses the current consensus estimate of $6.25 billion. These are the recent developments for DraftKings Inc.
InvestingPro Insights
Recent data from InvestingPro sheds additional light on DraftKings' financial position and market performance, providing context to Deutsche Bank's cautious outlook. Despite the Hold rating, DraftKings has shown impressive revenue growth, with InvestingPro data indicating a 40.01% increase in the last twelve months as of Q3 2024. This aligns with an InvestingPro Tip suggesting that analysts anticipate sales growth in the current year.
However, the company's profitability remains a concern, as highlighted by an operating income margin of -11.09% for the same period. This is reflected in an InvestingPro Tip noting that DraftKings has not been profitable over the last twelve months, although analysts predict the company will become profitable this year.
The stock's recent performance has been strong, with InvestingPro data showing a 27.64% price total return over the last three months. This aligns with Deutsche Bank's observation of DraftKings as a volatile, narrative-driven stock.
For investors seeking a more comprehensive analysis, InvestingPro offers 12 additional tips for DraftKings, providing a deeper understanding of the company's financial health and market position.
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