DraftKings Slips As Analyst Says Sell On 'Overoptimistic' Share Estimates

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Shares of DraftKings (DKNG) are under pressure on Tuesday, Jan. 19 after Berenberg analyst Jack Cummins initiated coverage of the name with a Sell rating. After looking at the competitive landscape in the U.S. sports-betting sector, the analyst believes the market is "overoptimistic" about DraftKings and thinks the upcoming migration to the SBTech platform could lead to operational challenges and lost market share.

Market 'Overoptimistic'

Berenberg analyst Jack Cummins initiated coverage of DraftKings with a Sell rating and $41 price target, as he thinks the market is "overoptimistic" about DraftKings after looking at the competitive landscape in the U.S. sports-betting sector.

While Cummins is bullish on the size of the U.S. market, which he expects to reach $22 billion in terms of gross gaming revenue in 2025, the analyst is less confident in DraftKings’ chances of success. He believes the upcoming migration to the SBTech platform could lead to operational challenges and lost market share.

Cummins also questions the competitiveness of the SBTech product given its existing client base and recent client losses. Further, he believes valuation looks full, and while he accepts the U.S. market deserves a premium, when adjusting for other revenue streams and focusing on U.S. sports-betting and iGaming, DraftKings looks "overvalued versus peers." The analyst thinks any loss of share, combined with its current valuation, would temper sentiment and push the shares down.

Meanwhile, Cummins also raised the firm's price target on Flutter Entertainment (PDYPY) to 14,300 GBp from 10,400 GBp, while keeping a Hold rating on the shares. The analyst noted that Flutter’s shares have performed exceptionally over the past year, leading to a rich valuation.

While some of the premium to peers is certainly justified by the consistent performance in the U.S. and the high probability that Flutter will remain market leader, he sees little room for further multiple expansion from these levels.

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