Shares of DraftKings (NASDAQ: DKNG) have seen a decline at the start of 2024, with state-level data indicating that the company has lost market share to competitors ESPN Bet and FanDuel. However, analyst Jeffrey Stantial of Stifel believes that this pullback represents a buying opportunity.

In a new report to clients, Stantial upgraded shares of DraftKings to “buy” from “hold” and raised his price target to $45, indicating a potential upside of 19.6% from the current close. He cited the fading of near-term headwinds and the potential for fundamental growth in the company’s outlook as reasons for the upgrade.

With fourth-quarter earnings reports expected in the coming weeks, operators with online sports wagering exposure, including DraftKings, have cautioned investors that results could be impacted by bettors’ good fortune last November.

Stantial estimates that DraftKings lost around 600 basis points in online sports betting handle in the September through December period, primarily due to the November debut of ESPN Bet and FanDuel’s dominance among NBA bettors. While ESPN Bet has seen strong user adoption, DraftKings is seen as having superior client retention capabilities.

However, Stantial acknowledged that his call on DraftKings is controversial, as Flutter Entertainment, the parent company of FanDuel, is set to list its shares on the New York Stock Exchange on January 29. This could lead to some retail investors liquidating their DraftKings positions in favor of Flutter.

Despite the near-term challenges, Stantial sees compelling reasons to own DraftKings, including robust same-state trends, the potential for strong free cash flow generation, and growth in the iGaming segment. He believes that DraftKings has opportunities to improve and expand its betting product offerings, user experience, and value-added features.

Overall, Stantial sees a positive forward trajectory for DraftKings, reflecting continued execution on product, healthy same-state handle/gross gaming revenue growth trends, incremental state legalization, structural hold-rate expansion, and cost discipline and scale efficiencies.

The outlook for DraftKings remains positive, despite recent challenges, according to Stifel’s Stantial.

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