Newly publicly listed company DraftKings is making headlines with Wall Street giants like Morgan Stanley. As the company’s stocks trade moderately higher compared to its initial listing, the banking behemoth believes that the sportsbook operator could outperform.

Morgan Stanley gives a price target

DraftKings has received an ‘outperform’ rating from the bank alongside a $23 price target. Morgan Stanley analyst Thomas Allen suggests a 23% rise from Wednesday’s closing price of $19.48. After going public last Friday, the company’s stock has gone up by 10%. The company went public using a special purpose acquisition company- Diamond Eagle Acquisition Corp.

Allen wrote in a note to clients, “DraftKings is an almost pure play on the early-stage legal US sports betting and iGaming growth opportunity, with a customer acquisition advantage.” Allen has been bullish on the sports betting markets in the country for long and believes that DraftKings is the “best-in-breed” name in the industry. In an event of high upside, the stock could be worth as high as $75, quadrupling from its current prices.

A positive time for sports betting?

Last year, Morgan Stanley predicted that the US sports betting marketing could balloon in size to $7 billion by 2025 if at least 36 states start offering legalized wagers. Allen has altered that forecast as well, suggesting that the industry could grow to $12 billion by 2025, and DraftKings will be able to outpace that growth. Its revenue is expected to increase by at least 30% during this time. He also noted that the company could capture a 20% share of the US sports betting market and a 15% share of the online gambling markets.

Colorado will be launching its sports betting market on May 1, making it the 18^th state with live sports betting. Another five states have already signed off their sports betting bills, but are yet to come online. Their efforts may be delayed because of the pandemic but they will be onboard in the next few months.

A $23 price forecast for DraftKings means a 16x price-to-earnings ratio for the company. This makes it an expensive stock in the mid-cap category with a $6 billion market cap. However, it is relatively cheaper than the S&P Midcap 400 Index. Allen suggests that even though it is expensive, the premium on the price is justified because the company is clearly headed to profitability.