DraftKings stock price target lowered to $53 at Jefferies on tax headwinds

Jefferies has lowered its price target on DraftKings (DKNG) to $53 from $60, while maintaining a Buy rating, primarily due to escalating tax headwinds across key states including New Jersey, Louisiana, and Illinois. These tax impacts are projected to significantly pressure future earnings, with Jefferies reducing its 2025 adjusted EBITDA forecast to $775 million (below company guidance) and its 2026 estimate to $1.25 billion from $1.5 billion. The broader regulatory environment, exemplified by Illinois' new transaction fee and CEO concerns about increased illegal betting, underscores the challenges, even as other analysts like Citi and JPMorgan maintain positive ratings, balancing regulatory hurdles with long-term growth prospects.

Analysis

Jefferies has revised its outlook on DraftKings (DKNG), reducing its price target to $53 from $60 while maintaining a Buy rating, signaling a tempered but still positive long-term view. The primary driver for this adjustment is escalating tax headwinds across New Jersey, Louisiana, Illinois, and Maryland, which are expected to impact earnings by approximately $25 million per quarter in the latter half of 2025. Consequently, Jefferies' 2025 adjusted EBITDA forecast of $775 million now sits below both company guidance ($800-900 million) and the consensus estimate of $839 million. This pressure extends into 2026, with an estimated $80 million in tax headwinds compounded by $75 million in launch fees and a $100 million placeholder for new market costs, leading to a lowered 2026 adjusted EBITDA projection of $1.25 billion, well below the prior $1.5 billion estimate. The company's strategic response, such as implementing a 50-cent transaction fee in Illinois, highlights the direct margin impact of regulatory changes. While other firms like Citi, JPMorgan, and Bernstein also maintain Buy or Overweight ratings, they similarly acknowledge the near-term regulatory risks, creating a narrative of a company with strong growth prospects navigating a challenging and evolving fiscal landscape.

Key Decisions for Investors

• Investors should recalibrate their 2025 and 2026 earnings models to reflect the quantifiable tax headwinds and launch costs, as consensus EBITDA estimates appear at risk given Jefferies' revised, lower projections.
• Monitor the regulatory environment in key states closely, as the Illinois tax hike and DraftKings' subsequent transaction fee signal a potential trend of margin compression that could impact profitability and user engagement.
• Despite the near-term challenges, the stock retains a consensus Buy rating and may be considered undervalued by some metrics, presenting a potential opportunity for long-term investors to accumulate a position while factoring in the heightened regulatory risk profile.