Wells Fargo upgrades DraftKings, says growth momentum will continue

DraftKings can add to its blockbuster 2023 performance as it heads toward $1 billion in adjusted EBITDA, according to Well Fargo. The company posted stronger-than-expected second quarter results Thursday. “We learned a lot last week: DKNG is capturing share, capitalizing on an improved product, and limiting opex growth,” analyst Daniel Politzer wrote in a Monday note. Politzer upgraded shares to overweight from equal weight. He also lifted his price target to $37 from $28, which implies 16.6% upside from where shares closed Friday. To be sure, he noted the stock has already popped more than 179% year to date — but foresees more upward EBITDA revisions, which he says will result in a better valuation. DKNG YTD mountain DraftKings stock “EBITDA is inflecting more quickly/steeply than we previously envisioned, and we expect its op. Momentum to continue,” said Politzer. He cited structural hold improvements, shorter payback periods, secular growth and industry consolidation and aging cohorts driving down promotional expenses as tailwinds for earnings growth. The analyst added that DraftKings’ bull thesis is beginning to play out, noting growing market share and increasing structural hold, all while costs “remain in check.” More customer acquisition is ahead in early September with the NFL kickoff, said Politzer. Upcoming state launches and more potential state legislation allowing sports betting in the near quarters could lead to more expansion for DraftKings. Shares gained nearly 2% Monday before the bell. —CNBC’s Michael Bloom contributed to this report.