DraftKings is poised for an upswing as the sports betting stock nears an inflection point, according to Bank of America. Shaun Kelley upgraded the sports betting stock to a buy from a neutral rating, citing expectations for an acceleration in revenue momentum and inflection in both margins and profitability. DKNG YTD mountain Shares in 2023 “While DKNG has outperformed in 2023, we think market share gains can drive both Q2 ’23 and near-term top line revisions (though likely anticipated) while cost leverage will likely drive bigger revisions in Adj. EBITDA and margins than anticipated,” he wrote in a Wednesday note. Shares popped 4% before the bell. The analyst lifted his price target to $35 from $25 a share, reflecting about 21% upside from Tuesday’s close. That’s on top of a 154% gain so far this year, which Kelley attributed to the quicker pace of new state openings and higher online sports betting hold. Kelley also sees a strong runway for growth in the near-term. He expects the market to grow 35% year over year in 2023 and at a 15% compounded annual growth rate between this year and 2027. Cost leverage should also increase as promotions decline in some states, gross margins improve due as hold rates rise and promotions dwindle, and external marketing spending eases, he added. “DraftKings has also reached a key cost inflection in its young business model, as we believe the rate of growth in cost of revenue and external marketing have peaked,” Kelley said. — CNBC’s Michael Bloom contributed reporting
