In the tempestuous seas of the stock market, where fortunes rise and fall with the capricious gusts of investor sentiment and economic winds, DraftKings finds itself amid a trough of uncertain fortune. The betting behemoth’s shares (NASDAQ: DKNG) have weathered a punishing downturn over the past month, plummeting by 15.06% and reducing its impressive climbs from earlier in the year to a scarcely notable year-to-date ascension of just 0.77%. However, in the world of equities where the fickle heart of the market beats, some stalwart analysts hold a torch for the beleaguered gaming stock.
It was on a recent Tuesday that DraftKings had the honor of being anointed as one of three newcomers to Bank of America’s coveted US 1 List— an illustrious ledger of the bank’s crème de la crème equity ideas culled from its pool of buy-rated darlings on domestic exchanges. To even be considered for this exclusive list, a stock must be more than just a resident on US soil, it must boast an average daily trading activity north of $5 million over the half-year leading up to its coronation. With typically 30 to 40 stocks gracing this ledger, the collection will never see its numbers dwindle below 25. According to performance evaluations by Seeking Alpha, the US 1 List has a sterling record of besting the S&P 500 Index over the prior annum.
DraftKings is joining this prestigious roster alongside luminaries such as the high-flying Nvidia (NASDAQ: NVDA), embedding itself within a group that includes powerhouse names like Amazon (NASDAQ: AMZN) and Costco (NASDAQ: COST).
Yet the shadows that currently coil around DraftKings’ fortunes can be traced back to the Prairie State, where Illinois’ recent greenlight of a graduated tax on gaming entities promises to levy heftier dues upon the most profitable operators. This change escalates the ante considerably, with DraftKings and its rival FanDuel anticipating an average tax rate jump from 15% to an onerous 36.5% commencing on the first day of July. This tax augmentation threatens to gnaw into the earning prowess of these operators within Illinois’ borders, and there is a divide among pundits regarding the likelihood of other jurisdictions emulating this fiscally aggressive stance.
In the wake of Illinois’ legislative move, Massachusetts made a failed foray to hike levies on their sportsbook operators. Nevertheless, the consensus among certain market watchers suggests other states might soon follow the lead, with New Jersey and Michigan— both major sports betting markets and prolific online casino hosts— being potential frontrunners.
Despite these looming clouds, DraftKings and its peers are charting courses to navigate the fiscal storm. Options on the table include reigning in marketing and promotional spendings in those states cranking up the tax dial.
Seizing his quill, Jefferies analyst David Katz composed a missive on Monday, signaling his bullish sentiment towards DraftKings and elevating his price target on the stock from $52 to an optimistic $54. According to Katz, these burgeoning sports wagering taxes could spur DraftKings to accelerate the rollout of Jackpocket, its recently acquired digital lottery resource, across the constellation of states within its empire.
