DraftKings and Penn National Gaming

  • Investment banking company Morgan Stanley has downgraded both DraftKings and Penn National.
  • Thomas Allen cites investor’s expectations being too high as to why their growing value on the NASDAQ is happening.
  • The company still predicts both DraftKings and Penn National’s value will increase.

NEW YORK – Morgan Stanley’s Thomas Allen has given his take on the growing success of both Penn National and DraftKings on the Nasdaq.

In his assessment, the Wall Street Analyst downgrades both sports betting entities, citing that investors’ expectations are too high.

Allen also concluded that both companies’ values would increase in the coming weeks, recommending investors to hold on to their stocks as well as purchase more.

Sports Betting Stocks

With legal sports betting entities rapidly growing and expanding as more states regulate sports betting, it only makes sense that the stocks of certain companies would increase.

Allen believes there are over a handful of macro risks that investors should look out for as his reasoning for downgrading the value of the companies.

“DKNG and PENN have both more than doubled since the start of the year, said Allen. “While we think a lot of the increased value is valid, we are concerned investors’ expectations are too high, and see 6 potential negative catalysts through the end of the year.”

One of the core potential issues is that sports betting entities are reliant on major sporting events taking place in order for the company’s value to remain high.

Allen sites the upcoming 2020 NFL season as an example, with the season possibly being canceled due to the coronavirus pandemic. If there is no NFL season this year, then the analyst predicts the values of these sports betting operators would fall.

Allen’s next concern is the impact sports bettors losing their federal stimulus benefits. A large issue in the country currently is the lack of disposable income due to the coronavirus.

A lot of sports bettors are relying on government aid right now, and eventually, that source of income will run its course. Allen worries about the state of online sports betting when that happens.

The next potential issue is the reversal of the stay at home trend. Online sports betting as boomed with many sports bettors staying at home and being unable to bet on sports in person.

As the country reopens, Allen argues if the boom of online gambling will continue or will it drop.

Allen’s remaining concerns include the disappointment of the state legalization process, with many bills taking months and several attempts before passing, the expiration of the lockup period which is DraftKings specific, and the ultimate increase in the industry competition.

The last issue is specifically in regards to Barstool launching its sports betting app in September. DraftKings currently holds 62% of the US sports betting market, but Allen expects that to change when Barstool launches.

“From [Penn National’s] perspective, we are concerned that the app is not as successful as hoped. From [Draft Kings’] perspective, we are concerned that Barstool is more successful than expected, potentially taking share away,” said Allen.

Even with these concerns, Allen predicts growth in the companies’ stock prices. Morgan Stanley forecasts DraftKings jumping to $37 from $26 a share, and Penn National jumping to $55 from $49 a share.

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