DraftKings (NASDAQ:DKNG) shares rose 5% after Bank of America upgraded the sports betting company to Buy from Neutral while maintaining a $27 price target.
Analyst Julie Hoover said the stock’s 47% year-over-year decline had changed the risk-reward profile. The $27 target represents approximately 45% upside from the share price referenced in the analyst note.
Bank of America’s upgrade follows a period in which DraftKings has faced uncertainty around spending on prediction markets and unfavourable NFL outcomes.
BofA Estimates Prediction Markets Could Generate $400 Million in Fees
Hoover identified DraftKings’ position in prediction markets as a factor behind the upgrade, describing the regulatory situation as a “win-win” for the company.
According to Bank of America, DraftKings has become the third-largest participant in the prediction market sector.
If prediction markets remain viable under the regulatory framework, the bank estimates the business could generate approximately $400 million in fees for DraftKings by 2027, alongside an additional $200 million to $400 million from market-making activities.
Hoover also said concerns that prediction markets could reduce activity at traditional sportsbooks have not materialised so far. According to the analyst, traditional sportsbooks have grown faster than prediction markets since the start of the football season.
If regulators ultimately prevent prediction markets from operating, Hoover said the “terminal value overhang” associated with the business could be removed from DraftKings’ valuation.
The analyst also said DraftKings’ participation in prediction markets could provide experience applicable to other potential markets, including cryptocurrency trading and collectible cards.
Bank of America Revises DraftKings EBITDA Forecasts
Bank of America lowered its 2026 EBITDA estimate for DraftKings to $500 million from $625 million after the company’s chief executive said at an industry conference that investment in prediction markets could be “meaningfully” higher than previously expected.
For 2027, however, the bank raised its EBITDA estimate to $1.15 billion from $1.05 billion, citing expectations for improved performance in the core sportsbook business and contributions from market-making activities.
Hoover said DraftKings could provide 2027 EBITDA guidance of between $1.0 billion and $1.2 billion. That estimate assumes modest growth in the core business and a limited contribution from prediction markets, according to the analyst.
Bank of America’s $27 price target is based on approximately 12 times its 2027 enterprise value-to-EBITDA estimate.
Looking beyond 2027, the bank said it would like to see greater cost discipline in DraftKings’ core operations to support higher incremental margins and cash flow conversion in 2028 and subsequent years.
DraftKings stock price
