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The Ratings Game: DraftKings’ stock has doubled this year, but one new bull sees more room to run

DraftKings Inc. is starting to benefit more from its scale, and that dynamic could help power its stock further, according to an analyst.

UBS analyst Robin Farley upgraded DraftKings DKNG, +7.82% shares to buy from neutral Monday, writing of her expectation that the company can gain traction in new states more quickly than it did in past markets it has entered.

DraftKings “has seen an acceleration in how quickly they penetrate new states, given the scale they now have, so that suggests they will ramp faster in new states in the future,” Farley wrote. She noted that the company saw its new state launches in 2022 and 2023 penetrate 3.4% of the adult population within 30 days, compared with a 0.6% rate for states that had legal online sports betting in 2018 and 2019.

While DraftKings shares have shot up 126% so far this year to just under $26, Farley’s $30 price target shows she thinks the name can run up further. “We believe further upside from the stock’s current levels is possible given the faster ramp in new states,” she wrote.

The stock is up more than 6% in Monday morning trading.

Don’t miss: Why DraftKings CEO Jason Robins isn’t celebrating the company’s big year

Farley also sees the potential for DraftKings to improve its hold rates, which the company defines as “the ratio of net win to total amount wagered.” She thinks the company could see “structural improvement” as parlays come to represent a larger portion of total bets.

Read: Why bettors have been beating sportsbooks with NFL draft bets for years

The company could also benefit from declining usage of promotions as DraftKings and its rivals pay more attention to profits. There’s a “more rational competitive environment” nowadays, Farley wrote.

DraftKings itself is focusing more broadly on expense controls with a more rational approach to staffing and marketing, she added.

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