Morgan Stanley added DraftKings (NASDAQ:DKNG) to its Top Picks list in a note Monday despite Illinois’ recent move to a higher/progressive tax structure.
The investment bank argues that tax increases do not translate 1:1 and should not be viewed as a foregone conclusion across markets.
“State budget shortfalls are not ubiquitous so higher taxes should not be a foregone conclusion,” Morgan Stanley writes, adding that the taxes are not like for like as operators curtail investment, marketing, and promotions.
“Where there is a need for taxes to plug budgets, incremental legalization of gaming could also be an opportunity (CA/TX OSB, MD/NY/IL iGaming),” analysts add.
Morgan Stanley reiterated an Overweight rating and $51 price target on DKNG, representing a potential 38% upside from current levels. “We see the tax concerns as overdone and earnings upside will drive a positive catalyst for both,” analysts state.
Furthermore, DraftKings was added as a Top Pick as Morgan Stanley believes the positive catalysts from capital return and reiterated guidance, even with the Illinois headwind, should re-rate shares.
