Shares of DraftKings (NASDAQ:DKNG) are up over 3% in pre-open trading Tuesday after earning an upgrade at JPMorgan.
JPMorgan analysts lifted their rating on the sports betting provider to Overweight from Neutral while raising the price target to $37 from $26. The new price target offers over 35% upside from Monday's closing price.
The analysts cited the sluggish stock performance since July, with the stock down 13% versus a 6% decline in the S&P 500.
Further, they see the industry as alluring, thanks to its promising potential for same-store and new market growth, set against the backdrop of an overarching trend toward enhanced control of operating expenses across the sector.
"We think DKNG has a strong moat (product, scale, brand) that should allow it to compete against new entrants like PENN’s ESPNBet and Fanatics, much like it competed against Caesars," the analysts commented.
The firm's new price target is based on 15x 2026 EBITDA of $1.2B plus year-end 2026 cash of $3.0B, discounted back one year at 10%.
Based on the firm's 2026 estimates, the stock trades at 2.0x EV/revenues, 9.5x 2026E EV/EBITDA, and a 5.7% FCF Yield. Meanwhile, on the firm's 2025 estimates, these multiples are 2.4x and 15.2x, with a free cash flow yield of 3.7%. "We view these multiples as not overly rich (assuming our out year forecasts are correct) for a pure-play digital OSB and iGaming operator," the analysts added.