Wall Street Bets is a roundup of recent notes from analysts covering the gambling industry.

DraftKings’ announcement it was going to charge a surcharge on certain wagers attracted the attention of Wall Street.

“Post an in line 2Q24 result,” wrote J. P. Morgan analyst Joseph Greff,  “we tweak our 2024 revenue, EBITDA, free cash flow, and adjusted EPS estimates to $5.15 billion, $381 million, $307 million, and $0.65, respectively, and see this growing to $6.8 billion, $1.435 billion, $1.29 billion, and $2.59 in 2026.  Note our estimates in 2025 assume DraftKing is a partial cash taxpayer in 2025 (5% rate) and 2026 (12.5%).  Our estimates reflect DraftKing’s updated and lowered 2H24 outlook and we trim our full-year 2025 and 2026 estimates to take out some risk.  We give zero credit for mitigating increased Illinois gaming taxes that went into effect July 1, 2024.  Similarly, we have not incorporated any positive impact from the newly announced planned gaming tax surcharge.  We have not modeled any share buybacks.

“We stay Overweight and (still) believe that DraftKings has an attractive revenue growth profile and an ability to leverage its scale to realize operating expense rationalization to generate improving margins, EBITDA, and free cash flow streams.”

“Following a rare miss/guide down, we see second-half estimates as de-risked while management is well positioned to execute towards long-term targets,” said Truist Securities analyst Barry Jonas. “That said, we’re curious to see reactions to the high-tax surcharges (planned start 1/1/25) beginning with Flutter’s reaction at its 8/13 earnings. DraftKings has given the surcharges much thought, but we could also see a change of course if it backfires. We lower ’24E EBITDA -16% to $380 million (midpoint a of new $340-420 million guide) and ’25E -2% to $970 million (still above reiterated $900-1,000 million midpoint). Our price target moves to $50 (from $53) mostly on a slightly higher discount rate. Remain Buy-rated with DraftKings still the best pure-play for digital gaming.”

David Katz of Jefferies wrote “2Q24 was the most complex in a while for DKNG on market strategies, cost management, product evolution and capital allocation decisions. While the market dynamics and stock narratives have changed over time, DKNG continues to fulfill its commitments, and we have no reason to doubt the 4Q24-2025 set-up. The macro volatility complexities are also heightened elsewhere in our coverage, which leaves digital an easier bullish call, in our view. Reiterate Buy.”

We lower our target price from $16 to $12.50 and our stock rating from Buy to Neutral,”  wrote analyst David Bain of B Riley August 5, looking at AGS. “Changes reflect AGS’ announced definitive agreement to be acquired by affiliates of Brightstar Capital Partners for $12.50 per share. AGS will be hosting its special shareholders’ meeting on August 6 to formally vote on the pending acquisition, which we anticipate passing. We also make refinements to our model, though our estimates are largely unchanged.”

David Katz of Jefferies looked at Macau August 5, writing that “The steady but unspectacular Macau summer continued into August, according to our industry sources and checks. The focus on illegal money exchanges in Macau continues to weigh on volume levels, as we noted increased presence during a recent channel checks visit to Macau. This combined with China macro concerns continue to overhang sector valuations. Galaxy in Hong Kong (market share gains) and MGM (global opportunities) in US remain top picks.”

Please fill out the form to send a message to the CDC Gaming Reports team. Alternatively, you can send an email to the address on the footer of each page.