August 11, 2022, DraftKings Inc. (NASDAQ:DKNG) and Caesars Entertainment, Inc. (NASDAQ:CZR)
With football season on the horizon and inflation finally showing signs of cooling, consider these firms the best stocks to buy now.
Things move fast in this market. One day, tech tanks and recession fears poison everything. The next day (August 10, 2022), inflation shows signs of cooling, and the Dow jumps 530 points (1.63%), the S&P 500 climbs 2.13% and hits a 3-month high, and the Nasdaq pops 2.89%. With the CPI rising 8.5% in July vs. 9.1% in June and lower than the projected 8.7%, our inflation nightmare may be ending. That’s why discounted gaming stocks with immense upside like DraftKings Inc. (NASDAQ:DKNG) and Caesars Entertainment, Inc. (NASDAQ:CZR) could finally be the best stocks to buy now.
Admittedly, both of these stocks are a gamble. But how fitting is it that both companies make money off of gamblers? Both stocks have plummeted for much of the year, but fortunes are beginning to change. Especially with football season on the horizon, the time is now to get back into these stocks while they’re still cheap. These two stocks are the types you want to own when inflation eventually cools, and the Fed finally stops hiking rates potentially by 2023.
Although these names don’t have the fundamental strength or dividends that stocks in other sectors have, they have an increasingly high analyst upside that bodes well for a significant bull run over the year and change. After all, the Global Online Gambling Market could reach a market value of roughly $172 billion by 2030 at an 11.6% CAGR or and the fantasy sports market could register a CAGR of 5% through 2026.
So without further ado, here is why DraftKings and Caesars are the best stocks to buy now.
DraftKings Inc. (NASDAQ:DKNG)
Recent earnings, upgraded guidance, and new price targets from Guggenheim, Benchmark, and Morgan Stanley have this gaming stock eyeing a 75+% upside.
Prominent online gaming and daily fantasy sports operator DraftKings Inc. has seen its stock catch fire since May’s lows, almost doubling.
Yet DraftKings remains -32.74% below its 2002 highs and is poised to continue this upward climb. Following its recently reported Q2 earnings and bullish forward-looking guidance, analysts are beginning to rush back into the stock and hike their price targets.
It’s an unconventional name to pick as one of the best stocks to buy now. Inflation is still sky high, and we may or may not be in a recession. But markets always look down the road. This stock isn’t rallying so significantly with no end in sight by accident.
DKNG’s Latest Quarterly Revenue and Full-Year Guidance Signal a Return to Rapid Growth
Before March 2021, DKNG had great fanfare. The disruptor that brought daily fantasy sports to the world went public in 2019 and became a pandemic-era darling, rocketing 660+% from $9.76 to $74.38 in March 2021.
While fortunes for the stock have worsened since that peak, there are signs that hyper-growth is back. It starts with outstanding Q2 earnings and vastly improved full-year guidance.
Revenue, first and foremost, came in at $466 million, a 57% year-over-year increase from $298 million. B2C revenue also grew to $455 million, a year-over-year increase of 68%. Both revenue and Adjusted EBITDA outperformed the midpoints of their respective guidance ranges for Q2 2022.
Another reason why now may be the time for DraftKings to evolve into one of the best stocks to buy now is its continued growth in player retention, acquisition, and engagement. In the same earnings report, DraftKings reported that unique monthly payers (MUP) increased to 1.5 million average monthly unique paying B2C customers, a 30% year-over-year increase. In addition, average revenue per MUP came in at $103, a 30% year-over-year increase.
Why the increase in these critical metrics? Unique player retention and acquisition across DraftKings’ Sportsbook and iGaming products, strong customer engagement, and (surprisingly) reduced promotional intensity.
With DraftKings exceeding expectations for the second consecutive quarter and the NFL season weeks away from starting, the Company raised its fiscal year 2022 revenue guidance to $2.08 billion-$2.18 billion from the previous forecast of $2.055 billion-$2.175 billion. This updated guidance also suggests year-over-year growth of 60% to 68%.
Finbox, as a result, now projects DraftKings’ net income to grow 40.4%, average 148.2% over the next five fiscal years, and deliver median growth of 86.2% over the next five fiscal years.
Strong Profitability, Technical Indicators, and Mounting Catalysts
DraftKings isn’t one of the best stocks to buy now based on valuation multiples or fundamental margins. But, if you want to go that route, it still holds more cash than debt on its balance sheet and offers a solid gross margin of 33.1%.
Additionally, from a technical perspective, DraftKings may be very buyable at the moment. According to BarChart, the stock crossed its first resistance point of $18.62 and could have more room to run before hitting its second and third points of $19.28 and $19.82.
It also notes the following short-term, medium-term, and long-term technical indicators as BUY signals.
- 20 Day Moving Average
- 20 – 50 Day MACD Oscillator
- 20 – 100 Day MACD Oscillator
- 50 Day Moving Average
- 100 Day Moving Average
- 150 Day Moving Average
With recent strategic initiatives announced with the UFC, former ESPN head John Skipper’s Meadowlark Media, and expansion into Ontario, Canada, chances are, both the fundamentals and technicals will improve even more. It’s best to get in now while the stock is still relatively cheap.
A Rash of Recent Analyst Upgrades Points to a 75+% Upside
Simply put, analysts are once again loving the DKNG stock. As said by a Needham analyst in a note, the Company is “a leader in the emerging North America online gambling market” with a “sustainable customer acquisition strategy that should continue to drive its first- or second-place position in all states.”
Over the last week, Guggenheim gave DKNG a street-high $34.00 price target, representing a 75.53% upside from August 10, 2022’s $19.37 closing price. Benchmark and Morgan Stanley also gave the stock a $30.00 price target.
In total, 15 Wall Street analysts offered a 12-month price target for DraftKings in the last 3 months. As mentioned, it currently has a street-high price target of $34.00. It also has a low price target of $14.00 and an average of $23.50. The average price target represents a 21.32% upside from August 10, 2022’s close.
DKNG’s year-to-date low and high are $9.77 and $28.80, respectively.
Caesars Entertainment, Inc. (NASDAQ:CZR)
This beaten-down hospitality name could have a 43+% upside.
While Caesars Entertainment may not have the same type of explosive potential as DraftKings, it offers more safety and fundamentals as a prominent player in the hotels, restaurants & leisure industry.
CZR is one of the best stocks to buy now for many other reasons besides gaming stocks charging back and the NFL restarting soon. It’s more than a pure play on online gambling and fantasy sports. It gives investors a more established name, diversified revenue stream, and exposure to the travel industry’s continued rebound. As of December 31, 2021, Caesars owned, leased, and managed 52 domestic properties in 16 states, consisting of approximately 55,700 slot machines, video lottery terminals, and e-tables; 2,900 table games; and 47,700 hotel rooms.
The stock has been in free fall for much of the year. However, there are signs of life, as the stock has rallied 37.89% since touching its 2022 lows. With the stock poised to rally some more, it’s best to get in now while it remains -50.30%below its highs, trading with dirt cheap 1.0x forward and trailing price-to-sales multiples.
CZR’s Earnings Have Nowhere to Go but Up
Caesars reported Q2 earnings last week (August 2, 2022), and although they were not exceptional on the surface, they added context to some bullish growth projections.
Although Caesars missed big on EPS estimates, revenue for the quarter came in at $2.80 billion versus the consensus estimate of $2.77 billion and marked a 12% year-over-year increase.
Several forecasts indicate that Caesars has nowhere to go but up from here. For one, projections show earnings turning positive in the coming year. Revenue could also see a monstrous 60.4% 5-year CAGR, and net income could grow 49.2%, average 89.1% over the next five fiscal years, and deliver median growth of 67.2%% over the next five fiscal years.
Outstanding Institutional Ownership, Bullish Insider Activity, and Several Strong Margins
When considering Caesars as one of the best stocks to buy now, think strategically and outside the box by tracking its institutional and insider activity.
First, institutions hold 94.75% of CZR’s shares. A figure like this signals a great deal of big money backing the Company with confidence and a tightly held share structure. Companies with this type of institutional ownership rarely fail and always prevail in the end.
Additionally, company insiders unquestionably believe Caesars is one of the best stocks to buy now. In the past three months, insiders have bought 81.00% more shares than they’ve sold.
While several of the Company’s margins leave something to be desired, you don’t produce a 46.8% gross margin or 13.3% operating margin by being inadequately run.
A STRONG BUY With a 43+% Upside
TipRanks rates CZR a STRONG BUY. Of the 12 Wall Street analysts who offered a 12-month price target in the last 3 months, an overwhelming 10 rate the stock a BUY. CZR currently has a high price target of $102.00, a low of $32.00, and an average of $69.27. The average price target represents a 43.12%% upside from August 10, 2022’s closing price of $48.40.
Coinciding with its summer rally, however, are several analysts that have given the stock a price target well above its average, including Truist Financial at $70.00 and Cowen at $85.00.
CZR’s year-to-date low and high are $35.10 and $97.39, respectively.
