Stifel reiterates Buy on DraftKings stock, $40 price target

DraftKings reported Q1 revenue of $1.65 billion, up 17% year over year and above estimates of $1.63 billion, while EPS came in at $0.20 versus $0.03 expected. The company reaffirmed its fiscal 2026 guidance, and Stifel maintained a Buy rating with a $40 target versus the current $24.66 share price, implying substantial upside. Management also cited April re-acceleration in handle and structural net gaming revenue growth, with Sportsbook margin up 140 basis points year over year.

Analysis

The market is still pricing DraftKings like a high-beta discretionary story, but the more important change is that the company is starting to behave like a compounding cash-flow platform with multiple monetization vectors. The near-term reacceleration in handle and gross profit margin expansion suggest the core sportsbook engine is stabilizing, while the optionality from Predictions creates a second growth leg that the market is likely underestimating because it is not yet reflected in consensus models. If that product gains even modest traction, it can extend customer lifetime value without requiring the same level of paid acquisition, which is the key margin lever here.

The bigger second-order winner is not necessarily DKNG alone but FLUT, because any validation of category-wide demand resilience and forecast discipline helps re-rate the entire online gaming complex. That said, DKNG likely has more upside torque because it is earlier in the margin inflection and more exposed to a positive multiple expansion if investors conclude the iCasino slowdown was transitory rather than structural. The main risk is that the market extrapolates one quarter of better hold and promotion discipline into a durable demand trend; if promotional intensity rises or state-level tax/regulatory changes worsen, the thesis can unwind quickly over the next 1-2 quarters.

Consensus appears to be underappreciating the asymmetry in guidance credibility: reaffirming a long-dated target while delivering incremental operating beats tends to pull forward buy-side estimates, and that can matter more than the target price itself. The stock has likely moved enough that chasing outright upside here is less attractive than structuring around the event path into the second half, when Predictions and broader TAM reacceleration either validate or fail. The contrarian issue is that the bull case may already be partially crowded, but the bear case requires evidence of a demand slowdown that is not yet visible in the latest run-rate data.

Key Decisions for Investors

• Stay long DKNG, but express it with upside-defined exposure: buy 3-6 month call spreads to capture a re-rating into the Predictions ramp while capping premium decay risk if the growth reacceleration proves transient.
• Pair trade: long DKNG / short a basket of slower-growth consumer internet names over the next 1-2 quarters, betting that incremental estimate revisions and margin inflection attract capital to names with visible operating leverage.
• Add FLUT as a relative-value beneficiary of category validation, but size smaller than DKNG; use it as a hedge against idiosyncratic execution risk at DKNG while retaining exposure to sector re-rating.
• If DKNG trades back toward the low-$20s on any post-earnings digestion, use that as the better entry window for common or call spreads; risk/reward is materially better there than chasing after a strong tape.
• Reduce or hedge if sportsbook net gaming revenue growth or handle trends weaken for two consecutive monthly datapoints; that would be the earliest sign the reacceleration thesis is stalling before the second-half product catalyst.