On Tuesday, Oppenheimer analysts maintained their positive stance on DraftKings (NASDAQ:DKNG) stock, even as the Illinois State Senate approved a budget plan that proposes an increase in online sports betting (OSB) taxes.
The new tax structure, which is expected to be adopted by the State Assembly and go into effect on July 1, 2024, introduces a graduated scale that could see major operators like DraftKings facing a mid-to-high 30% effective tax rate, a significant jump from the current 15%.
The analysts project that this tax increase could lead to an approximate $38 million to $113 million reduction in DraftKings' gross profit for the fiscal years 2024 and 2025, respectively.
Despite these projections, DraftKings' stock has only seen a 9% decline over the past ten days, while the S&P 500 index has remained relatively flat, indicating that some investor concerns regarding taxation may have already been factored into the share price.
Oppenheimer believes that DraftKings is unlikely to alter its customer acquisition cost (CAC) strategy in Illinois for 2024. However, the firm does anticipate that if more states decide to raise taxes, it could negatively affect the buy-side EBITDA projections for 2025 and 2026.
On the flip side, the analysts suggest that increased regulation and taxes could speed up the consolidation of major operators like DraftKings and FanDuel, given their capacity to invest in brand marketing, promotional strategies, and product development across the nation.
In conclusion, Oppenheimer continues to recommend buying DraftKings shares on any dips caused by unfavorable legislative developments. The firm maintains its 'Outperform' rating on the stock with a price target of $60.
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