FanDuel and DraftKings are the top stocks investors are asking about as they survey the sports betting and igaming landscape, according to Wall Street analysts.
In a note to investors over the weekend, David Katz, an analyst with Jefferies Equities Research, said the dynamics among recent trends for Flutter Entertainment, through its FanDuel brand, and DraftKings have been “the most active topic in our coverage.”
Katz said the most recent trends in what he called the “critical and still rapidly growing New York market” suggests that FanDuel is maintaining a significant lead in gross gaming revenue at 47% versus 36% for DraftKings. That happened despite DraftKings’s generating higher growth at 45% versus Flutter’s 27%.
“Finally, the generally rational promo environment and solid margin outcomes support a positive view on the shares of both companies,” Katz said. “Broadly speaking, the investor perspective appears more bullish on Flutter, given the positive data-point outcomes, although coupled with the downward estimate revisions for DraftKings. We note that both should be seeing estimates resetting post the Illinois tax increase, which we believe should be well understood. These remain top-idea stocks in our total coverage and our favorite category in our U.S. (gaming stocks) coverage for the remainder of 2024.”
Effective July 1, Illinois lawmakers upped the tax that now tops out at 40% for online sports betting companies, up from the 15% flat rate in place since the industry launched in the state in 2020.
Flutter’s stock price surpassed $200 Monday morning for the first time since May and has been up more than $11 over the past week.
Hedgeye analyst Sean Jenkins wrote, “Looking ahead as the industry matures and the duopoly of Flutter and DraftKings continue to build their lead, there’s an improving rationale and strengthening investment case for owning both,” Jenkins wrote. “We like the setup for Flutter, as while the second quarter appears de-risked, focus has not yet shifted to what could come on the back end of a choppy first-half. If our analysis is correct, that shift could happen soon and industry leaders, along with their reaccelerating top lines, should benefit disproportionately.”
DraftKings surpassed $38 on Monday and reached its highest price point since June 25, after surpassing $46 in mid-May.
Last week, analyst Jeff Stantial with Stifel picked DraftKings as a top pick of the upcoming earnings season and the second half of 2024. He said the recent price slide was due to Illinois increasing its taxation and downward revisions in EBITDA.
“Looking ahead to the remainder of 2024, legislative session and budget discussion timing suggested likely limited incremental catalysts until 2025, which we think should enable investor focus to shift back to DraftKings’s ongoing FCF inflection,” Stantial said.
Stifel has a $50 price target, while Jefferies pegs it at $54.
In the same note on stocks to watch for, Katz also cited Everi and IGT.
Given the pending deal between Everi and the gaming business of IGT, coupled with the pending re-bid for the Italian Lotto contract, the market has shown little support for the shares of either company, Katz wrote.
IGT is down 27% year to date, while Everi was down 26.4%, Katz wrote over the weekend.
“On Everi, our check-in with management and update to estimates support the view of a late-2024 inflection and remaining hope for an end-of-2024 closing in the merger of the IGT/Everi gaming businesses,” Katz said. “We expect these combined businesses to be well positioned strategically, but a post-closing integration period could extend the earnings acceleration timing into 2025-26. Further, we continue to field inbound questions on the IGT Italy Lotto contract re-bid, which we believe is relatively secure, but unconfirmed until 2025. Thus, valuation support could remain hard-earned for the time being.”
