Jefferies Financial Group has re-initiated coverage on Flutter Entertainment with a "Buy" rating and price target of $380 per share, 35% above the current level. The coverage is driven by Flutter's robust digital presence, which generates more than 90% of revenues, and its extensive global reach.
Analyst James Wheatcroft identified that these factors isolate the firm from broader macroeconomic stress, most significantly during economic decline. In Wheatcroft's opinion, the extremely recession-proof status of Internet gambling revenue does not respond in tandem with the broader economy.
Key Takeaways
- Jefferies analysts have put a “Buy” rating on Flutter Entertainment stock.
- Jefferies sees Flutter's digital strength and global reach as buffers against economic downturns.
- Strategic buyouts in Italy and Brazil enhance Flutter’s long-term international market potential.
Flutter's healthy company finances, characterized by managed debt levels and a robust share repurchase program, make it an attractive investment. Despite recent commentary that highlighted slowing US marketplace growth, Jefferies credits strategic adjustments by Flutter, such as gradual reductions in advertising spending and product fine-tuning, but not structural business weaknesses.
Aside from the dominant American market share for FanDuel Sportsbook, Jefferies also believes that Flutter's international business has significant value overseas. It thinks investors undersell the potential upside in key global markets, including the UK, Italy, Australia, and Brazil.
Flutter's buyouts of Italy's online gaming business, Snai, and Brazilian gaming business, NSX Group, are designated strategic acquisitions that enhance its market position. Jefferies estimates that Flutter's EBITDA will increase at a 17% compound annual rate, and sales will increase by 31% over the next three years, indicating that there may be revenue opportunities that investors are underestimating.
DraftKings grapples with financial challenges
Other gaming operators are also being given revamped positions. DraftKings might have lower margins following recently implemented hikes in state-level taxation and incremental expenses resulting from expanding markets.
In a July report to investors, Jefferies' David Katz also remained bullish about the broader online gaming space but cited several revenue headwinds facing DraftKings. Katz pointed out that Illinois, New Jersey, Maryland, and Louisiana are planning several upcoming tax rises that could lower DraftKings' third and fourth-quarter cash flow by $25 million each.
Missouri sports betting launch costs could take another $10 million away from its fourth-quarter bottom line.
Against these headwinds, Katz remained guarded in his outlook. He predicted second-quarter revenue of $1.4 billion and $212 million in cash flow, which matched market consensus. He predicted $775 million of cash flow for the year, lower than DraftKings' guidance of $800 to $900 million and lower than the Wall Street consensus of $839 million.
Katz was more bullish on Rush Street Interactive, citing healthy iGaming revenue that can withstand tax and currency effects. Estimates included second-quarter revenue of $253 million and 2026 Cash Flow of $172 million, which aligns with the consensus. Still, they suggest that Rush Street's future financials are robust in this era of company consolidation in the gaming industry.
