Wall Street Bets: Analysts take on DraftKings, Bally’s, and AGS second quarter results

August 7, 2023 2:40 PM
Photo: CDC Gaming Reports
  • Rege Behe, CDC Gaming Reports
August 7, 2023 2:40 PM

Wall Street Bets is a roundup of recent notes from analysts covering the gambling industry.

DraftKings’ second quarter report drew widespread analysis from Wall Street analysts.

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Barry Jonas of Truist Securities August 4 wrote that DraftKings posted an impressive +$73 million of positive EBITDA in the second quarter, representing the company’s first profit-positive quarter. Management again raised its 2023 guide (EBITDA losses now +$110 million better) as a number of positive trends continue to play out, including: sustained high hold (structural and luck); continued share gains (handle/GGR to the low 30%’s in online sports betting while still #1 in igaming; efficient state launches; and benefits from national advertising. We update the model for the quarter and 2023 guidance, though our longer-term estimates are under review.

In an August 4 note for J.P. Morgan, analyst Joseph Greff wrote that after DraftKings second quarter results, we move our second half 2023 through 2025 estimates higher, reflective of the successes DraftKings has achieved in the last three quarters, which we see continuing to propel its revenue and EBITDA arcs, relative to our prior forecasts. Namely, we see a path to continued increasingly efficient player growth and retention, further progress in increasing its online sports betting parlay mix and ensuing structural hold gains, accretive marketing, overall cost rationalizing, and igaming market share gains– all positives, obviously.

“That said, we have a tough time on valuation, with DraftKings trading at 21.3x 2025E EV/EBITDA. Ascribing a healthy 17.5x to 2025E EV/EBITDA, and discounting this back one year, generates a year-end 2023 price of $26. We see better digital/online sports betting/igaming valuations (Caesars and MGM), and for this reason we retain our (relative value) Underweight rating.”

Equity analyst David Katz of Jefferies, also in a note about DraftKings, August 4 wrote that The continued revenue and earnings acceleration suggest that further upside in the shares remains. Most notable in support of this view is the increasing productivity in mature states, which continue to generate revenue and profit growth. We believe this results from product evolution, which still has room for progress. With the highest volume NFL season forthcoming, we believe the positive momentum in estimates and the shares continues.”

Katz also wrote August 3 about Bally’s second quarter earnings, stating “the solid results, maintained guidance, and pivoting capital spending are positiv es, although the guidance bears some moving parts, notably ramping spend in digital, which should be neutral for the stock. We believe the quarter highlights earnings growth potential in land-based gaming going forward, while the domestic digital business is still somewhat more formative. In total, building operating momentum and strategic stability remain the Street’s key focus.

B Riley Securities analyst David Bain in a note wrote that “following a 7% beat to consensus EBITDA, we raise CY23E/CY24E EBITDA 3%/4%” for PlayAGS. “Key performance indicators clearly show continued market share gains. However, what makes second quarter 2023 special from previous reports, in our view, was quarter over quarter positive free cash flow inflection and net leverage reduction accelerating to investors’ `magic number’ range of between 3.5x and 3.0x. AGS net leverage is now 3.6x. AGS improved its calendar year 2023 ending net leverage target from 3.25x and 3.75x to 3.25x and 3.5x, respectively. We believe AGS will be within the 3.5x net leverage range by the end of 3Q. Reiterate Buy.”