DraftKings Inc. (DKNG) shares rose more than 6% after favorable comments from Credit Suisse and Needham analysts.

Key Takeaways

  • DraftKings shares rose more than 6% after favorable comments from Credit Suisse and Needham analysts.
  • The analysts believe that the nascent sports betting market continues to see strong growth and that the company is well positioned as a first mover in the space.
  • The technical picture looks a bit cloudy, but traders should watch for a breakout to reaction highs or a breakdown to trendline support.

Credit Suisse initiated coverage on DraftKings stock with an Outperform rating and a price target of $76.00 per share, citing its leadership position in the rapidly growing business-to-consumer U.S. mobile sports betting industry following the legalization of sports betting in May 2018. The analyst believes that the company's unique customer acquisition strategy and marketing relationships should drive margin expansion and market share over time.

In addition, Needham stated its Buy rating and $70.00 price target on DraftKings stock following last week's pre-announcement. While some viewed the announcement as mixed, the analyst came away encouraged by DraftKings' outperformance on the customer acquisition front, while the rising secular tide could lift the stock with its first mover and brand advantages.

Secular is a descriptive word used to refer to market activities that occur over the long term. Secular can also point to specific stocks or stock sectors, unaffected by short-term trends. Secular trends are not seasonal or cyclical. Instead, they remain consistent over time.

Last week, the company offered third quarter guidance as part of an SEC filing on the new 32 million share offering, saying that it expects third quarter revenue of $131 million to $133 million compared to a $131 million consensus estimate.

Chart showing the share price performance of DraftKings Inc. (DKNG)
TradingView.com

From a technical standpoint, the stock rebounded from trendline support during Monday's session, suggesting a potential reversal from its short-term downtrend. The relative strength index (RSI) remains neutral with a reading of 52.12, but the moving average convergence divergence (MACD) remains in a bearish downtrend. These indicators suggest that traders should look for confirmation of a trend reversal before trading the name.

Traders should watch for an ongoing move higher to retest reaction highs of $55.00 or prior highs of nearly $65.00. If the stock experiences a near-term decline, a bearish head and shoulders pattern could emerge with a neckline at around $50.00. If the stock extends its rebound, it could continue within its bullish price channel, which appears to be more likely based on the positive fundamental news flow.

The Bottom Line

DraftKings shares moved sharply higher during Monday's session after two analysts came out with favorable comments on the stock. While the short-term trend remains uncertain, traders should watch for a breakout from reaction highs or a move lower to test trendline support.

The author holds no position in the stock(s) mentioned except through passively managed index funds.