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DraftKings Lifted to Buy as Goldman Likes Market Position

DraftKings is upgraded to buy at Goldman Sachs, which says 'gaming's digital renaissance is still in its nascent stage.'
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DraftKings  (DKNG) - Get DraftKings Inc. Report was upgraded to buy from neutral by a Goldman Sachs analyst who cited the digital gambling company's market position in key states.

Shares of the Boston company at last check were up 5.7% to $54.22.

Analyst Stephen Grambling, who also raised his price target to $65 a share from $45, said in a note to investors that gambling's digital renaissance is still in its nascent stage.

"We upgrade DKNG based on their sustained market leading position in key states, ability to participate in the economics of single-operator states, and presence of national contracts which will allow them to achieve scale sooner than the broader peer group," the analyst said.

DraftKings, he added, has "ample dry power to invest in near-term growth, plus optionality to engage with single operator states and leverage key national partnerships."

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Grambling said he continued to see DraftKings and Penn National Gaming  (PENN) - Get Penn National Gaming Inc. Report as having "the greatest optionality to drive a network effect which we expect to be accompanied by an upward valuation rerating."

Over the next 12 months, Grambling said he expected the two companies to "surface benefits of national brand recognition and scale coupled with rapid consumer adoption in existing markets and improving visibility of new key markets (e.g., NY, FL, TX, plus potentially progress in CA by year-end)."

The analyst forecast better-than-expected revenue growth, due to use adoption in the second half of 2020, new partnerships such as ESPN  (DIS) - Get The Walt Disney Company Report, and improved user experience with the planned transition to sportsbook technology provider SBTech in the second half of 2021.

"We see upside optionality as we believe DKNG is best-positioned to capture attractive economics, even in high-tax jurisdictions through single-operator contracts," Grambling said.

DraftKings and Penn National are "best positioned to leverage their size and/or media reach to gain market share and increase competitive moat" compared with new entrants and smaller competitors.

Penn National shares were down 4.7% to $99.10.