Two of the best performing online sports betting stocks are sized up with new ratings from Loop Capital.
The Analyst: Loop Capital analyst Daniel Adam initiates coverage on DraftKings Inc DKNG with a Buy rating and $100 price target.
The analyst also initiated coverage on Penn National Gaming PENN with a Hold rating and a $69 price target.
Total Addressable Market: Loop Capital lists the total addressable market for online sports betting and iGaming at $30 billion, which is higher than other analysts are projecting. Adam said analysts are viewing New Jersey as a mature market and basing the market size on the state, although he thinks New Jersey is far from mature.
Adam said the market size could be $34 billion to $40 billion based on 75% of the U.S. population having access to online sports betting.
Related Link: DraftKings Soars On Q3 Beat, Updated Guidance
On DraftKings: Adam said DraftKings is the play on online sports betting and could see strong growth from a growing market and growing share in existing markets.
DraftKings is in 10 states, which is about 20% of the U.S. population. Adam said the company can "increase penetration in both existing and new markets" and models DraftKings' around 49% average market share in 2021.
“Bottom line: We believe DKNG will emerge the clear share leader in online gaming given its powerful brand, early mover advantage and digital-first DNA," he wrote in the note.
On Penn National: Adam said it's still too early to declare Penn National a winner in the online sports betting market, as the majority of Penn’s revenue and EBITDAR come from its land-based regional casinos.
“...Penn’s sports betting app is currently live in just one state, meaning OSB is not a material earnings contributor for the company," he wrote in the note.
Adam also points to higher marketing and promotional spending for Penn National due to online sports betting going live in new markets like Michigan, Virginia and Maryland, which could hurt earnings.
DKNG, PENN Price Action: Penn National Gaming shares are up 2% to $65.93 on Tuesday. DraftKings shares are up 7.9% to $46.09.
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