Monday, UBS adjusted its stock price target for DraftKings Inc. (NASDAQ:DKNG), a digital sports entertainment and gaming company, to $56.00 from the previous target of $60.00. Despite the reduction, the firm has maintained its Buy rating on the company's shares.
The revision follows the implementation of a higher state tax in Illinois, which took effect on July 1, 2024. UBS anticipates that the new tax structure will impact DraftKings' financials, specifically projecting a reduction in the company's gross profit by $36 million in 2024 and by $82 million in 2025.
The analyst from UBS stated, "We are lowering our DKNG estimates given the higher Illinois state tax that went into effect July 1." The firm's rationale for the adjusted price target reflects these new tax implications but still supports the positive outlook on the stock with a continued Buy rating.
The stock price target adjustment to $56 from $60 by UBS is indicative of the challenges DraftKings may face due to the new tax environment in Illinois. Still, the maintained Buy rating suggests that the firm believes in the company's underlying value and long-term prospects despite these near-term headwinds.
DraftKings, known for its digital sports betting and gaming platforms, is among the companies in the industry that are sensitive to regulatory and tax changes in various states. Such financial forecast adjustments are common as analysts account for external factors that could affect a company's revenue and profit margins.
In other recent news, DraftKings has been the focus of several analyst reports and internal developments. The firm Stifel continues to hold a positive outlook on DraftKings, maintaining a Buy rating and a price target of $50.
This comes despite the company's shares experiencing a 15% decline over the past two months, attributed to factors such as tax increases in Illinois and downward adjustments to the company's second quarter and full-year 2024 EBITDA estimates.
Oppenheimer, on the other hand, adjusted its price target for DraftKings from $60 to $58, maintaining an Outperform rating. The firm cited factors such as lower-than-expected hold in the second quarter, increased promotions targeting new players, increased taxes in Illinois, and investments in Jackpocket for its revision.
Guggenheim also revised its price target for DraftKings, lowering it to $52 from $53, while maintaining a Buy rating. The firm's second-quarter revenue estimate for DraftKings remains at $1.12 billion, but the adjusted EBITDA expectation has been reduced to $143 million from $164 million.
Deutsche Bank (ETR:DBKGn) reiterated its Hold rating on DraftKings shares with a target of $35, citing increasing regulatory risks and a potential shortfall in the second quarter of 2024 earnings. The bank expects DraftKings to experience a year-over-year decline in gross margins for the second quarter, attributing this to several factors including elevated customer acquisition costs and lower than anticipated online sports betting hold.
Finally, DraftKings has announced the reappointment of Erik Bradbury as its Chief Accounting Officer, marked by a significant restricted stock unit award.
InvestingPro Insights
As DraftKings (NASDAQ:DKNG) navigates the new tax landscape in Illinois, insights from InvestingPro suggest a mixed financial outlook. Analysts expect the company's net income to grow this year, which could reflect a positive trajectory despite the tax headwinds. Moreover, there's an anticipation of sales growth in the current year, signaling that DraftKings' revenue stream remains robust.
InvestingPro Data indicates a significant revenue growth of 57.0% over the last twelve months as of Q1 2024, with a market capitalization of $18.31 billion. Despite not being profitable in the last twelve months, analysts predict DraftKings will turn a profit this year. The stock's price movements have been quite volatile, a factor investors might consider when evaluating the risk associated with the stock.
To gain a deeper understanding of DraftKings' financials and for additional insights, readers can explore more InvestingPro Tips. There are currently 11 additional tips available, providing a more comprehensive view of the company's financial health and future prospects. For those interested in accessing these tips, use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription at InvestingPro.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.