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DraftKings Falters After JP Morgan Opens Its Coverage With a Glum Assessment

By Rhian Hunt - Dec 7, 2020 at 5:59PM

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The big analyst appears to disagree with the generally bullish mood about DraftKings.

While many analysts and investors appear to have an upbeat attitude toward online sports-betting company DraftKings, Inc. ( DKNG -9.36% ), JP Morgan launched its coverage of the stock with a less enthusiastic analysis and rating. The firm gave DraftKings a neutral rating and set its price target, $48, at the approximate level of the company's current stock market value.

While the analysis did give DraftKings credit for a good platform and first-mover advantage, it then provided a list of reasons why the sportsbook company might not have the major room for expansion other analysts assume. Its research note cites growing competition, the possibility of slowing legalization state to state in the USA, and adds DraftKings' "premium valuation multiple" "may not be sustainable."

A group of enthusiastic people watching a sports game on a tablet.

Image source: Getty Images.

Following JP Morgan's guarded statement, DraftKings ended the day's trading down 2.7%. However, there is also evidence to support the bull case. Potentially contrary to JP Morgan's position, there appears to be ample room for expansion, with Needham research projecting sports betting could grow into a $58 billion industry in the United States. Any temporary pullback caused by COVID-19-related sports-league suspensions will likely be more than counterbalanced by future growth.

DraftKings itself seems to be moving ahead in the expectation of further expansion. Following ballot measures legalizing sports betting in three more states, the company sealed a deal with Foxwood Resorts Casino in Connecticut, getting its foot in the door even before sports betting is legalized in the Nutmeg State. Other analysts have given DraftKings a price target as high as $70

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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