There was a time in the not too distant past when the major professional sports leagues avoided gambling like the plague. Those days are gone with the wind. Now, teams and leagues are embracing the top gaming companies with open arms, as more and more states legalize online gambling and fantasy sports betting. In 2018 the U.S. Supreme Court ruled in the favor of individual states on a case involving the constitutionality defined by a 1992 law, the Professional and Amateur Sports Protection Act, which prohibited states other than Nevada and Delaware from operating sports betting.
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That ruling caused a tsunami of change, and many states have since legalized gambling for not only casino-operated gaming but for online digital gambling and betting on fantasy sports. A new Jefferies research report includes a deep-dive into what the firm calls the digital gaming matrix. The analyst noted this:
Digital Gaming continues to present itself as the most critical development across Gaming, especially as the formative sports betting market continues to expand across the nation. Overall, we expect the sports betting market to reach ~$19 billion by 2025, predicated on the four “super states”: Florida, Texas, California and New York (likely closest) legalizing mobile wagering. While the intangible, on-the-come nature of the business makes assigning values theoretical, we believe the amalgamation of online and social engagement measures should serve as a proxy for operating performance over time. We note that our review of the data suggests more of the engagement is oriented toward sports betting versus iGaming, which has important implications for interpreting brand scores.
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Three top stocks that trade on U.S. exchanges are cited as among the firm’s favorites, and they are Buy rated at Jefferies. All make sense for aggressive growth investors looking to invest in this massive and fast-growing arena, but it is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
Caesars Entertainment
Shares of this well-known old-school gaming company offer solid upside. Caesars Entertainment Corp. (NASDAQ: CZR | CZR Price Prediction) provides casino-entertainment and hospitality services, primarily under the Harrah’s, Caesars, Horseshoe and Eldorado brand names.
Its facilities include gaming offerings, food and beverage outlets, hotel and convention space, and non-gaming entertainment options. Caesars Entertainment is one of the largest gaming companies in the world and currently owns or operates 50 casino properties in 13 states and in four other countries.
Also the largest casino company in the United States, Caesars Entertainment, recently bought a minority stake in fantasy sports platform, SuperDraft. Caesars has the option to increase its stake to 100% over time at predetermined levels. SuperDraft will join the Caesars online brands, which include World Series of Poker, Caesars Online Casino and William Hill, and it will become part of Caesars’ single wallet solution that allows members more options to play games both live and online.
Jefferies has an $85 price target for the stock, while the Wall Street consensus target is up at $89.15. Caesars Entertainment stock closed Tuesday’s trading at $81.57 a share.
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DraftKings
The company became a huge favorite with younger people due to the surge in popularity of fantasy football. DraftKings Inc. (NASDAQ: DKNG) operates as a digital sports entertainment and gaming company. It provides users with daily sports, sports betting and iGaming opportunities. It also is involved in the design and development of sports betting and casino gaming platform software for online and retail sportsbook and casino gaming products.
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The company entered the market in April 2020 in a time when most companies were putting off their initial public offerings. The offering was not an IPO in the truest sense because DraftKings came public through a merger with a special purpose acquisition company called Diamond Eagle, but similar rules applied, a practice that has grown exponentially since then.
On the revenue side, DraftKings saw a 98% year-over-year surge to $132.8 million in the latest quarter, reported on November 13. The company raised its full-year 2020 revenue range to $540 million to $560 million, which equates to 25% to 30% annual revenue growth. DraftKings also introduced 2021 revenue guidance of $750 million to $850 million, which equates to 45% year-over-year growth using the midpoints.
The Jefferies price target is $67, which is higher than the $61.63 consensus target, as well as Tuesday’s last trade for DraftKings stock, which came in at $62.13 a share.
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Flutter Entertainment
While this company is perhaps a lesser known player to most investors, the brands it owns and runs are huge. Flutter Entertainment is the world’s largest bookmaker, and it operates as a sports betting and gaming company in the United Kingdom, Ireland, Australia, the United States and elsewhere. Its shares are traded over the counter.
Flutter offers sportsbooks and exchange sports betting products, daily fantasy sports products and pari-mutuel betting products; fixed odds games betting products; online games and casinos; peer-to-peer games, including online bingo and poker; and business-to-business services. The company provides sports betting and gaming services through various websites and under the Paddy Power, Betfair, Sportsbet, TVG, FanDuel and Adjarabet brand names.
Back in December, the company got one step closer to having complete ownership of fantasy sports and sports betting giant FanDuel after the sportsbook announced it was acquiring an additional 37% stake in the business, bringing its ownership position to 95%. Boyd Gaming owns the remaining 5% interest. Flutter is buying the position from FanDuel owner Fastball Holdings and will pay $2.1 billion in cash plus about 11.7 million in new Flutter stock. The acquisition will lift its ownership stake from 57.8%.
The $233 Jefferies price target is well above the share price of $199.97 at Tuesday’s close. No consensus target was available.
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The massive potential for the total addressable market is more than enough reason for investors with a solid risk appetite to add one or all these stocks to portfolios. They have all had big runs over the past six months, so it probably makes sense to buy partial positions now and see if we don’t get a pullback to add more.
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