On Friday, Truist Securities adjusted its outlook on shares of DraftKings Inc. (NASDAQ: NASDAQ:DKNG), reducing the price target to $50 from the previous $53 while maintaining a Buy rating on the stock. The adjustment follows DraftKings' recent performance, which included a shortfall and a reduction in guidance. Despite this, the analyst from Truist Securities believes that the estimates for the second half of the year are less risky, and management is in a strong position to achieve long-term targets.
The firm is closely monitoring the industry's response to the planned high-tax surcharges set to begin on January 1, 2025, specifically looking out for the reaction from Flutter Entertainment at its earnings report on August 13. DraftKings has considered the implications of these surcharges extensively. However, Truist acknowledges the possibility of a strategic pivot if the surcharges lead to unfavorable outcomes.
Truist has revised its 2024 EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) estimate downward by 16% to $380 million, aligning with the midpoint of DraftKings' new guidance range of $340 million to $420 million. The 2025 EBITDA estimate has also been slightly reduced by 2% to $970 million, which remains above the company's reiterated midpoint target range of $900 million to $1,000 million.
The reduction in the price target to $50 is primarily attributed to a slightly higher discount rate used in the valuation. Despite the recent adjustments, Truist maintains a positive outlook on DraftKings, considering it the top pure-play option in the digital gaming sector. The firm's stance indicates confidence in the company's potential for growth despite the challenges posed by the upcoming tax changes.
In other recent news, DraftKings Inc. has been the focus of various analyst adjustments and has reported a notable increase in its revenue forecast for 2024. BMO Capital Markets maintained an Outperform rating on the company, despite lowering the price target to $48 from the previous $54.
This adjustment followed DraftKings' Q2 earnings report, which fell short of market expectations, with revenue and adjusted EBITDA missing consensus estimates. Guggenheim also retained its buy rating but reduced the price target from $52 to $51, while CFRA upgraded its rating from Hold to Buy, maintaining a 12-month price target of $42.00.
DraftKings' Q2 revenue reached $1.104 billion, marking a 26% year-over-year increase, driven by robust customer engagement and new market expansion. However, the company lowered its EBITDA forecast due to factors such as Illinois tax rate changes and losses from the newly acquired Jackpocket.
The company is expanding its geographical footprint, planning launches in Washington D.C. and Puerto Rico. Truist Securities lowered its price target on the company's shares to $53 due to potential legislative changes in Illinois. These are recent developments in the company's journey.
InvestingPro Insights
Recent data from InvestingPro sheds light on DraftKings Inc. (NASDAQ: DKNG) with metrics that could be crucial for investors considering the company's outlook. Notably, DraftKings has a significant market capitalization of $15.28 billion, reflecting its substantial presence in the digital gaming sector. While the company's P/E ratio stands at a negative -35.91, indicating that it is not currently profitable, analysts are optimistic about the future, predicting that DraftKings will become profitable this year. This aligns with Truist Securities' positive stance despite recent challenges.
The company's revenue growth is particularly impressive, with a 57% increase over the last twelve months as of Q1 2024. This suggests that DraftKings is expanding its market share and revenue streams effectively. Additionally, the gross profit margin of 39.06% in the same period indicates a solid ability to control costs relative to income.
InvestingPro Tips also highlight that analysts expect net income and sales growth in the current year, which may support the company's targets for the second half of the year as noted by Truist Securities. However, it's important for investors to consider that the stock price has been volatile, and four analysts have revised their earnings downwards for the upcoming period. For those seeking a deeper dive into DraftKings' financials and future prospects, InvestingPro offers additional tips and data points to inform investment decisions.
For further insights and a full list of InvestingPro Tips, interested readers can visit: https://www.investing.com/pro/DKNG
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