JPMorgan Upgrades DraftKings, Sees Buying Opportunity Amid Lagging Performance
DraftKings Inc. shares have recently underperformed the S&P 500, prompting JPMorgan analyst Joseph Greff to view this as a buying opportunity.
In his latest analysis, Greff upgraded DraftKings shares from neutral to overweight. He pointed out the company’s position in a promising sector with strong growth prospects, both in existing markets and new markets. This upgrade comes against the backdrop of improving operating expense control across the industry.
Despite experiencing a pullback in the past two months, DraftKings shares have delivered significant gains of 140% year-to-date. However, they have trailed behind the S&P 500 since late July.
Greff anticipates several favorable financial trends for DraftKings. He expects the company to benefit from higher “hold rates,” which represent the portion of betting money that DraftKings retains. This positive trend is attributed, in part, to the popularity of parlay betting.
Furthermore, Greff notes that DraftKings is likely experiencing improved customer loyalty due to factors such as brand recognition, trust, and product enhancements. This improved loyalty can lead to reduced customer acquisition costs, contributing to overall profitability.
Price Target and Competitive Position
In light of these positive assessments, Greff has raised his price target on DraftKings shares to $37, up from the previous target of $26.
While the online sports betting market is competitive, Greff remains optimistic about DraftKings’ competitive position. He highlights DraftKings’ strong “moat” consisting of a solid product, scale, and brand recognition, which should allow it to compete effectively against new entrants in the industry.
Valuation and Outlook
Greff projects DraftKings shares trading at 2.0 times his 2026 estimates for enterprise value to revenue and 9.5 times his estimates for enterprise value to earnings before interest, taxes, depreciation, and amortization (Ebitda). He considers these multiples as not overly rich, given DraftKings’ strong fundamentals and the potential for an improved Ebitda trajectory.
JPMorgan’s upgrade of DraftKings shares reflects optimism about the company’s future prospects in the online sports betting industry. Despite recent challenges, DraftKings’ positive financial trends, improved customer loyalty, and competitive advantages position it for potential growth in the coming years.