DraftKings (DKNG) - Get Report positioned to score a large share of the U.S. sports-betting and iGaming market, according to a Goldman Sachs analyst, who initiated coverage of the digital sports entertainment and gambling company with a neutral rating.
Shares of the Boston company at last check were down 2.7% to $29.05.
Analyst Stephen Grambling also set a $32 share price target for DraftKings. That indicates an 8.3% upside potential from the Monday closing price.
DraftKings "is well-positioned to capture [an] outsized share of the rapidly growing U.S. sports betting and iGaming market," Grambling said in a note to investors, "given its existing Daily Fantasy Sports clientele of 4 million (30% conversion rate to sports betting in applicable states to date) and consumer preference for its app relative to competitors according to our download analysis."
The analyst said, "the company is a market leader in mobile sports betting due to its strong brand recognition as well as proprietary app and marketing engine."
DraftKings recently acquired the rights to live stream all Bundesliga soccer matches inside its sports betting app, along with rival FanDuel. Games started streaming on DraftKings on Saturday when Germany’s top soccer league restarted its season.
Grambling also said consumers are likely to more quickly adopt both sports betting and iGaming as they respond to the coronavirus pandemic and the resulting social- distancing protocols across sports and gaming.
But the analyst said the company's valuation largely reflects "these unique growth opportunities at 8 times management’s fully ramped [target for earnings before interest, taxes, depreciation, and amortization."
Grambling says Goldman estimates that figure "could take 7-plus years to achieve (vs. peers trading historically at 10 times [the] next-12-months FactSet consensus)," Grambling said, "leaving more limited upside after the 82% increase in the past month (vs. S&P +2%)."
On Friday, the company posted a first-quarter loss that was wider than a year earlier due to the coronavirus economic shutdown. DraftKings went public in April.