Shares of DraftKings (DKNG) fell Thursday even after Morgan Stanley initiated coverage on the sports gambling stock with an overweight rating and a $23 price target.
DraftKings went public last Friday in a reverse merger with blank-check company Diamond Eagle, with Diamond Eagle’s stock becoming DraftKings’ stock.
DraftKings sponsors daily fantasy sports contests. Morgan Stanley analyst Thomas Allen wrote in a report that the company was “almost a pure play” on the early innings of legalized sports gambling in the U.S.
While the coronavirus pandemic is crimping sports wagers now, with sports competition on hiatus and casinos closed, he expects that states’ deteriorating budget conditions will lead to a push for gambling.
Tax revenue for states will slump big-time amid the economic weakness stemming from the pandemic, and state governments may find sports betting and online gambling to "be the answer" to replace lost revenue.
With states continuing to legalize sports gambling - only 17 have fully legalized it so far, according to ESPN - industry revenue could explode by a factor of eight, to $12 billion in 2025, Allen said. The Supreme Court allowed states to legalize sports gambling in 2018.
Before Covid-19 shuttered almost all organized sports in March, DraftKings forecast that market revenue for online sports-betting and online casino games could hit $40 billion in the U.S., The Wall Street Journal reported
DraftKings shares recently traded at $19.31, down 0.47%. They have gained 10% since going public last week.
The stock, which was Diamond Eagle before last Friday, has soared 33% over the last three months.