Posting date: July 12, 20,23, 01h13.

Last updated: July 12, 2023 at 01:48h

DraftKings (NASDAQ: DKNG) extended its July rally Wednesday on the back of bullish comments from Bank of America analyst Shaun Kelley.

In midday trading, the stock is higher by 5.32% on volume that’s already exceeded the daily average. This brings its gains in the last week up to 16.56%, and the surge over the month to almost 22%. Kelley, in a client note, upgraded DraftKings from “hold” to “buy”, and raised his price target for the shares from $25 to $35. This implies an 18.6% increase from the July 11 close. That implies upside of 18.6% from the July 11 close.

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 adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) and margins than anticipated,” wrote Kelley.

DraftKings is higher by 167% year-to-date. Kelley said that the surge is due to a faster pace of sports betting launches by the states that have approved the activity, and an operator who has a larger sports wagering holding. In the case of DraftKings the recent rise in stock price is especially well-timed because the Boston-based firm is expected to release its second-quarter results by August 4. Analysts have revised the earnings per share (EPS), or the value of the stock, upwards in the past 20 years. Kelley points to the operator’s ability to better manage costs, such as marketing and promotional spending, as a catalyst for the shares.

“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,” added the analyst.

Kelley is also bullish on the growth trajectory of the online sports betting market in the US, noting it will grow 35% on a year-over-year basis in 2023. That’s while posting a compound annual growth rate of 15% from this year through 2027.

Kelley’s report adds to a spate of recently positive Wall Street commentary on DraftKings stock. Currently, 33 analysts cover the name, with 18 rating it the equivalent of “buy” or “strong buy.” The average price target is $28.74, which is below where the stock trades today, indicating there’s room for upside revisions to that number.

Speaking of upside potential, Oppenheimer bumped its price forecast on the gaming equity to $36 from $30 last week, while BTIG Research anointed DraftKings a top pick for the second half of 2023.

“DraftKings is expected to benefit from favorable fundamentals in 2023, including product improvements, an increasing parlay mix, a positive operating backdrop, and improved efficiency, which could drive significant upside in estimates and positive revisions,” according to BTIG.