Battered OSB stocks are set for an NFL recall
With the next NFL season just over a week away, online sports betting (OSB) stocks are coming back into favor, with companies such as DraftKings seeing their stocks once again become recommended investments.
With the NFL season just around the corner, many top Wall Street analysts are revising their price targets for online sports betting (OSB) stocks.
DraftKings (NASDAQ:DKNG), which saw its share price close at $16.50 on Monday (down 40.58% for the year), and Caesars Entertainment (NASDAQ:CZR), whose stock closed at $44.14 (representing a loss of more than half of its value during 2022), are two companies that are now receiving “buy” recommendations despite their stock prices declining throughout the year.
Wall Street bullish on DraftKings
Despite the share price decline, Wall Street remains bullish on DraftKings. On August 17, Roth Capital Partners analyst Ed Engel raised the share price target to $25 from $18 previously, while changing its rating from “Hold” to “Buy.”
Overall analyst sentiment is also bullish: TipRanks consensus analysts’ short-term forecast for DraftKings is now $24.07, with $34 being Wall Street’s highest target price for the stock relative to the lowest target of $16.
As a pure online betting game, DraftKings is not subject to the kinds of recessionary risks faced by sports betting casino operators. Although retail operators have so far been sheltered from economic headwinds, they could still face a slowdown in retail betting in the fourth quarter if the US economy is pushed into a recession by the Hawkish rise in interest rates charted by Fed Chairman Jerome Powell.
Caesars sportsbooks and casinos will benefit from increased NFL betting
That’s why analysts predict Caesars could also be a solid bet for investors in the upcoming NFL betting season.
“I really like Caesars,” said Lamar Villere, portfolio manager at Villere & Co. “As football season approaches, there should be a boost for casinos and sports betting.”
Villere also explains that since Caesars doesn’t operate a casino in the Asian gambling capital of Macau, which has been subject to COVID shutdowns, it hasn’t seen its revenue suffer — compared to MGM and Wynn, which do so there. operate large casinos.
“Césars is a pure domestic game,” Villere said. “You don’t have to worry about what’s happening with China and Macau.”
Many more Wall Street businesses will likely follow in the coming weeks with the NFL season kicking off on September 8 – and Kansas becoming the latest state to offer legal sports betting with a soft launch on Thursday.
Early 2023 will see Maryland launch online sports betting (to partner with the already active retail component), with Ohio already ready to launch on January 1 and Massachusetts also expected to go live early next year.
OSB stocks outperform seasonally
Over the past few years, OSB stocks have outperformed seasonally, between mid-summer and the start of the NFL season, as investors look to buy ahead of improved third quarter earnings reports – and in particular the fourth quarter.
Analysts forecasting higher OSB share prices are also pointing to generally positive second-quarter revenue numbers, which saw FanDuel lead the way when it reported positive EBITDA of $22 million in the second quarter of 2022.
This represented a breakthrough for the gaming industry, as FanDuel is the first US sportsbook and online casino gaming operator to report a profitable quarter. None of the other major online gambling operators – DraftKings, BetMGM and Caesars – are expected to turn a profit until 2023.
Meanwhile, Caesars’ digital losses narrowed to $69 million in the second quarter as it neared break-even in July. Likewise, the digital arm of PENN Entertainment is expected to generate profits in the fourth quarter of 2022.
In the short term, the sports betting industry will benefit from the additional revenue generated by the addition of four new states to the online betting pool. This will likely allow the big four (FanDuel, DraftKings, BetMGM and Caesars), which already account for nearly 90% of gross gaming revenue, to further consolidate their market share and force some smaller operators to sit on the sidelines.
Flutter stock price nearly even for the year
Only Irish gaming giant Flutter Entertainment Plc (LON:FLTR), the owner of FanDuel, managed to recoup most of its share price losses for the year. After rallying 30% in the past 45 days, Flutter stock closed Monday at 10,846.75 GBX (pence sterling), the equivalent of $126 per share, a relatively modest drop from 6.77. % since the beginning of 2022.
Meanwhile, shares of MGM Resorts International (NYSE:MGM) fell 25%, closing at $33.75 on Monday after trading at $48 in February.
2022 is another record year for sports betting
This is already shaping up to be the best year in the history of the US sports betting industry, as sports betting and casino operators will see record revenues, record sports betting management and record betting growth – fueled by the deployment of mobile sports betting in New York.
In the first half of 2022, overall gaming revenue was $29.16 billion, representing an 18% year-over-year gain from the first half of last year . With this year’s NFL season set to surpass last season’s betting handful, gaming revenue for 2022 could very well eclipse first-half earnings.
So why are gaming stock prices still so low?
Wall Street focuses on profitability, not market share
In the current inflationary environment, none of this long-term revenue growth is priced in by investors when it comes to online betting stocks. In a declining stock market environment, Wall Street is becoming defensive and focusing on profitability – rather than market share – when it comes to major sports betting valuations.
Speaking at a 2022 Goldman Sachs Travel & Leisure conference in early June, DraftKings CEO Jason Robins explained how market sentiment towards OSB stocks has changed.
“Until about say four [to] seven months ago, market share was what we were asked at these conferences,” Robins said. “How are you going to increase your market share? Do you think other players will take market share? Now it’s all about profitability…”
And with all of the major sportsbooks except PENN Entertainment not expecting to reach profitability until late 2023, it has dampened Wall Street’s enthusiasm for the once high-flying OSB sector.
With most OSB stocks still trading well below their 52-week highs, the prospect of another banner year for NFL online betting might be just the tonic needed to pull gaming stocks out of the doldrums.