A stock rating upgrade by Morgan Stanley saw DraftKings stock price reverse its negative trend that brought its share price from $64.50 to less than $20 in the space of four months.
Morgan Stanley upgraded the Boston-based gaming operator’s stock rating from Equal-Weight to Overweight in a report titled “Too Big an Opportunity to Ignore: Upgrade to Overweight.”
The intervention by the prominent investment bank signaled a buying opportunity for traders and medium- and long-term investors and the market reacted accordingly: DraftKings caught a break as its share price jumped by nearly 13% to $21.85.
“While we and the market have been focused on near- to medium-term profit concerns, we believe at the current price one should not ignore that DKNG is a leading market share player in what will be a very large profitable market.”
Thomas Allen, Analyst, Morgan Stanley
DraftKings, which is yet to turn a profit, saw its stock plummet by more than 65% in the last 12 months, with over 30% in this year alone but Allen stated the selloff had gone too far. He recommended Buy until the price is below $31 predicting DraftKings could grow its revenue by 63% this year and by 38% per year in 2023, 2024 and 2025, while US gambling could grow to $21 billion by 2025.
The majority of other industry analysts are not sharing the same upbeat outlook, split between Buy and Hold. 19 out of reported 32 covering the stock signal a Buy or Overweight, 12 suggest a Hold and 1 believes the stock would continue to go down recommending Sell.
Technically, DraftKings’ share price is far from being out of the woods, as the latest rally is a correction on the last down leg from January 11 and has yet to test the resistance line spanning from November 1. History suggests such verbal interventions usually have a short-term effect on the markets as the prevailing sentiment brings the price down eventually.
A more important question is whether Morgan Stanley has other incentives to intervene and turn the tide. A quick look at the list of the investment bank’s shareholders and DraftKings shareholders reveal names with significant shareholdings that are present on both lists and raises serious ethical issues.