Morgan Stanley sees a 60% upside

DraftKings Inc (NASDAQ: DKNG) went up 15% in the stock market on Wednesday after Morgan Stanley said it was “too big an opportunity to ignore” in the wake of the recent sell-off.

DraftKings upgraded to ‘overweight’

Morgan Stanley’s Thomas Allen upgraded DraftKings this morning to “overweight” with a price target of $31 that represents a 60% upside from where the stock closed on Tuesday. In a note to clients, he wrote:

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While we and the market have been focused on near to medium-term profit concerns, we believe at the current price, one should not ignore that DKNG is a leading market share player in what will be a very large profitable market.

The stock trades at about nine times its 2025 EBITDA estimate versus fifteen times for high-growth internet stocks. Last week, DraftKings partnered with Tulalip Tribes of Washington to operate sports betting in the Evergreen State.

Positive catalysts for the stock

Earlier in January, online sports betting legally went live in New York, which was an “immediate success”. Subsequent approvals from California, Nebraska, Ohio, Maryland, and Louisiana that are expected in the not-so-distant future, Allen wrote, will serve as positive catalysts for the stock.

Thanks to a high barrier for entry, the analyst doesn’t see competition as much of a threat for the Boston-based company either.

We expect DraftKings to be one of the few market share winners, and with sentiment at an all-time low on near-term loss concerns, we see now as a good time to invest for the long-term.

DraftKings reported a wider-than-expected loss in its latest reported quarter. Its Q4 earnings are scheduled for mid-February. DKNG was a notable beneficiary of the pandemic, hitting an ATH of $72 in March 2021 versus $22 at present.