Better Buy: DraftKing vs. Boyd Gaming Corp.

DraftKings Inc. (DKNG) Headquartered in Boston, Massachusetts, DKNG functions as a digital sports entertainment and gaming company in the United States and internationally. Boyd Gaming Corporation (BYD) works as a multi-jurisdictional gaming company. It is also engaged in owning and operating a travel agency.

The increasing adoption of smartphones has been driving the online gambling market. Mobile users account for about 80% of all users in the online gambling industry in most countries. The physical casinos are also witnessing reviving foot traffic with the easing of COVID-19 restrictions.

Despite the macroeconomic headwinds, U.S. commercial gaming generated record revenue in the second quarter of 2022. Data compiled by the AGA shows that nationwide revenue from traditional casino games, sports betting, and iGaming surpassed $14.81 billion in the second quarter, up 8.8% year-over-year.

The global online gambling market is expected to reach $115.13 billion in 2026, growing at a CAGR of 9.2%.

DKNG has gained 27.4% over the past month versus BYD’s 0.8% returns. However, BYD is the clear winner with a 16% decline versus DKNG’s 37.2% decline in terms of the year-to-date performance.

But which stock is a better buy now? Let's find out.

Latest Developments

In June, DKNG and BetBlocker, a leader in responsible gaming and safer play not-for-profit charity, announced their collaboration to advance awareness of and access to, BetBlocker’s acclaimed software. “BetBlocker’s contributions to safer play are commendable and DraftKings is pleased to team up with this enterprising and disruptive not-for-profit that is advancing responsible gaming in a comprehensive and consumer friendly way,” said Chrissy Thurmond, Senior Director of Responsible Gaming, DraftKings.

In the same month, UFC and DKNG announced plans to launch a new iteration of DKNG’s “Reignmakers” gamified digital collectibles franchise focused on UFC. Reignmakers UFC will allow fans to build collections of their favorite UFC fighters and utilize them in games to compete for prizes. The first season of Reignmakers UFC NFT-based games is expected to go live later this year.

In June, BYD announced that its Board of Directors had authorized a $500 million increase to the company’s existing share repurchase program. The authorization will allow the company to continue share repurchases as it concludes its previous repurchase authorizations, totaling $361 million.

Recent Financial Results

During the second quarter ending June 30, 2022, DKNG's operating expenses increased 25.2% year-over-year to $775.00 million. Its loss from operations amounted to $308.92 million, while its adjusted EBITDA grew 24% from its year-ago value to $118.13 million.

For the second quarter ending June 30, 2022, BYD's total revenue increased slightly year-over-year to $894.45 million. Its operating income amounted to $245.07 million, while its net income grew 29% year-over-year to $146.76 million. The company’s EPS rose 33% from its prior-year quarter to $1.33.

Past and Expected Financial Performance

DKNG’s revenue grew at a CAGR of 78.9% over the past three years. Analysts expect DKNG's revenue to increase 97.7% in the current quarter. The company's EPS is expected to grow 21.5% in the current quarter, 15.3% in the current year, and 29.7% next year. However, its EPS is expected to decline at a rate of 6.8% per annum over the next five years.

On the other hand, BYD’s revenue grew at a CAGR of 4.17% over the past three years. Analysts expect BYD’s revenue to increase 1.7% in the current quarter and 3.1% in the current year. The company's EPS is expected to grow 7.8% in the current quarter and 7.8% in the current year. Its EPS is expected to grow at a rate of 4.2% per annum over the next five years.

Profitability

BYD is more profitable, with a gross profit margin of 72.67% compared to DKNG’s 33.1%. Also, BYD’s 16.03% net income margin compares to DKNG’s negative net income margin of 99.15%.

Furthermore, BYD’s ROE, ROA, and ROTC of 38.63%, 0.12% and 10.82% compare with DKNG’s negative 78.41%, 0.43% and 32.07%, respectively.

Valuation

In terms of forward EV/Sales, DKNG is currently trading at 3.73x, 36.6% higher than BYD’s 2.73x. Moreover, DKNG’s trailing-12-month Price/Sales ratio of 4.79x is 164.6% higher than BYD's 1.81x.

POWR Ratings

DKNG has an overall rating of D, which equates to Sell in our proprietary POWR Ratings system. On the other hand, BYD has an overall rating of B, which translates to Buy. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

BYD has a B grade for Value, in sync with the company's discounted valuation. On the other hand, DKNG has a D for Value, which is justified considering its premium valuation. Also, BYD has an A for profitability, which is consistent with its higher profitability. On the contrary, DKNG has a D grade for Quality, given its poor profitability.

Of the 28 stocks in the F-rated Entertainment - Casinos/Gambling industry, DKNG is ranked #26 while BYD is ranked #3.

Beyond what we've stated above, we have also rated both the stocks for Growth, Momentum, Stability, and Sentiment. Click here to view DKNG’s ratings. Get all BYD ratings here.

The Winner

While both DKNG and BYD are expected to benefit from the industry tailwinds, BYD’s relatively lower valuation and higher profitability make it a better bet now.

Our research shows that odds of success increase when one invests in stocks with an overall rating of Strong Buy or Buy. View all the top-rated stocks in the Entertainment - Casinos/Gambling industry here.

DKNG shares rose $0.17 (+0.99%) in premarket trading Tuesday. Year-to-date, DKNG has declined -37.24%, versus a -12.32% rise in the benchmark S&P 500 index during the same period.

Spandan's is a financial journalist and investment analyst focused on the stock market. With her ability to interpret financial data, she aims to help investors evaluate the fundamentals of a company before investing.

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