An Updraft Is Brewing For DraftKings

DraftKings NASDAQ: DKNG shares are set up for an upswing in prices driven by execution, results, and the analyst. The company has been working relentlessly to expand into newly legalized territories, enhance offerings in maturing states and control costs. The results of those efforts are nearing jackpot quality.

The trend in the news has the analysts upping their targets again, and that activity has the stock on Marketbeat.com’s Most Upgraded Stocks list. The stock is the #2 most upgraded stock in the week since its Q1 release and the 8th most upgraded in the last month, which has it in a good position to rally. 

Marketbeat.com’s analyst tracking tools have picked up 13 new commentaries post-release, 27 in the last month, and they have the sentiment and price target firming. The sentiment and target are down YOY due to the COVID bump but trending solidly higher compared to last quarter and last month.

The takeaway from the chatter is that DraftKings is improving operations in maturing jurisdictions quicker than anticipated and growing in new states similarly. Among the many points of interest is the fact business remains robust without football or the World Cup. As it is, the consensus price target assumes the stock is fairly valued at current levels, but many of the newest targets are well above that level. 

DraftKings Has a Robust Quarter 

DraftKings had a robust quarter, which is unsurprising given the strength in other gaming names like Wynn Resorts NYSE: WYNN and non-gambling venues such as Electronic Arts NASDAQ: EA and Roblox NASDAQ: RBLX. The company reported $770 million in revenue for a gain of 85% YOY, beating the analysts' consensus by more than 1000 basis points. Faster-than-expected customer growth, a higher-than-anticipated hold rate, and high customer retention drive the gains. 

The company also narrowed its loss due to top-line leverage and internal efficiencies. The Q1 adjusted -$0.51 is less than half the per-share loss posted in the previous year, and it is $0.25 better than expected. That’s 32% above consensus compared to the 1000 bps of top-line strength and leverage, which is expected to continue, given the company’s momentum. 

Internal metrics of interest are the 39% increase in monthly unique users and the 35% increase in revenue per user. This is evidence of growth, retention and hold and led to increased guidance. The company raised its range for revenue to $3.135 to $3.235 billion compared to the prior top end of $3.05. This is also well above the analysts' consensus and has resulted in numerous revenue target increases from the analysts.

There are still significant catalysts for DraftKings business and share prices. Several states are on track to pass legislation, and others could introduce it soon. Kentucky and Puerto Rico are the latest to pass favorable legislation allowing entry into those markets soon. 

The Technical Outlook: DraftKings Is Reversing 

The price action in DraftKings is at an 18-month high and in reversal. The stock bottomed at the end of 2022 and has been trending higher. The post-release action took the stock above the baseline of a Double Bottom, and higher prices are likely to come. Assuming the market follows through on this signal, the stock could reach $31 by mid-summer 2023.