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DraftKings Lower After J.P. Morgan Initiates Neutral on Valuation

J.P. Morgan analyst Daniel Politzer began coverage of sports-gambling specialist DraftKings with a neutral rating and a $48 price target.
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DraftKings  (DKNG) - Get DraftKings Inc Class A Report shares fell Monday after J.P. Morgan analyst Daniel Politzer began coverage of the sports gambling company with a neutral rating and a $48 price target.

He likes the Boston company but not the valuation.

DraftKings recently traded at $47.86, down 2.8%. But it has nearly tripled since its April 23 reverse merger, as investors roll the dice on sports gambling plays. The stock is trading at 42 times sales, according to Morningstar.

“There is a lot to like” about the company, Politzer wrote in a commentary cited by Bloomberg.

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That includes its “position as a leader with scale advantages in the fast growing U.S. sports betting/iGaming industry,” he said. Sports gamblers “are fairly sticky” on their platforms, and DraftKings’ “is the most preferred,” he said.

But the stock is "acting more as a vehicle for investor sentiment/enthusiasm than closely reflecting fundamentals," Politzer said, according to Barron’s.

Moreover, "if the number of states that legalize and launch sports betting falls short of our estimate, or if states legalize sports betting but do not regulate it in a revenue-maximizing manner (e.g., online sports betting, remote registration, multiple skins/operators, etc.), out-year industry and DraftKings revenues may fall short of our forecasts, posing downside risk to our estimates and DraftKings stock.”

Rosenblatt Securities analyst Bernie McTernan rates DraftKings a buy, with a $65 price target. He mentioned the possibility of a brightening regulatory outlook, in a commentary cited by Bloomberg.

That came after DraftKings said it partnered with the Mashantucket Pequot Tribal Nation. Regulatory clearance in Connecticut “could be more significant if it pushes New York and Massachusetts over the goal line,” he said.