DraftKings jumps 17% as Morgan Stanley says investors should buy into a leader in the rapidly growing US betting market

• DraftKings stock jumped 17% on Wednesday after landing a Morgan Stanley ratings upgrade to overweight.
• The bank's $31 price target implies the stock holds the potential to drive up 60%.
• The upgrade arrived after New Yorkers placed $603 million in bets in the state's launch of online betting.

DraftKings shot higher Wednesday on a Morgan Stanley upgrade that said investors should take advantage of the stock's earlier decline to buy a leader in what could become a $21 billion US sports betting market.

The stock is now rated overweight, up from from equal weight, with Morgan Stanley noting the shares had dropped about 75% from its 52-week high. Shares of the Boston-based company rose 17% to an intraday high of $22.69.

"While we and the market have been focused on near to medium-term profit concerns, we believe at the current price, one should not ignore that DKNG is a leading market share player in what will be a very large profitable market," said equity analyst Thomas Allen in a note published Wednesday.

The investment bank's price target of $31 a share implies a potential 60% jump from Tuesday's closing price of $19.32.

The bullishness on betting comes after New York's Gaming Commission last week said New Yorkers placed $603 million in bets in the first eight days of the state launching legal, online betting earlier this month.

The data points "remind us how big and how concentrated an opportunity US sports betting/ iGaming is," Morgan Stanley said, adding that the implied market revenue run rate is $1.9 billion, higher than its previous projections of $600 million in 2022 and $1 billion in 2025.

"While only 4 operators were live in the first 8 days of the NY market, it still showed how the leading players dominate, with DraftKings, FanDuel, and [Caesar's Entertainment] at 98%/99% of handle," or the amount of wagered money by bettors.

The investment bank forecast legal US sports betting and iGaming to increase to $20.6 billion in 2025 from less than $1.5 billion in 2019 as more states legalize such activities and spending per capita rises.

Morgan Stanley also has bull-case price target for DraftKings stock of $87 that is supported in part by increasingly wider confidence among experts that California could legalize online sports betting this year.

The bank's bear case price target of $5 stems from a scenario under which the total addressable market would amount to $10.4 billion, with DraftKings losing market share.