Key Highlights

  • Bank of America upgraded DraftKings to Buy with a $27 price target.
  • The analyst sees roughly $400 million in prediction-market fees for DraftKings in 2027.
  • BofA also pointed to the stock's steep prior decline as an attractive entry point.
  • Other exchanges, including Cboe Global Markets, also moved on the same prediction-market theme.

DraftKings shares surged on Monday, Oct. 5, after Bank of America upgraded the sports betting company to Buy and called prediction markets a "win-win" for its business.

BofA Turns Bullish

DraftKings (NASDAQ:DKNG) jumped on the Russell 1000 on Monday after Bank of America analyst Julie Hoover upgraded the stock to Buy from Neutral with a $27 price target.

The shares surged to about $20.14, though reports differed on how far the stock rose. Multiple market trackers flagged the move as one of the day's notable analyst-driven gains.

At the heart of the call was Hoover's view of prediction markets, which she called a "win-win" for DraftKings.

The Prediction-Market Math

Hoover sees about $400 million of prediction-market fees for DraftKings in 2027. On top of that, she sees $200 million to $400 million of potential market-making revenue.

Prediction markets let users trade contracts tied to the outcome of real-world events, from sports results to economic data. BofA's argument, as reported, is that DraftKings stands to benefit from them.

BofA also pointed to the stock's steep slide over the past year, saying it offers an attractive entry point.

The theme reached beyond DraftKings on Monday. Cboe Global Markets (NASDAQ:CBOE) and Robinhood Markets (NASDAQ:HOOD) are launching binary contracts tied to company metrics. Cboe shares also rose after TD Cowen upgraded the stock to Buy and raised its target to $334 from $315, following Cboe's 25-year extension of its exclusive S&P 500 index licensing agreement. Flutter Entertainment (NYSE:FLUT), owner of FanDuel, ticked up.

Consumer Stocks Split

DraftKings' rally stood out in a weak patch for consumer discretionary stocks, which were trying to avoid a ninth straight weekly decline. RV makers Thor Industries (NYSE:THO) and Winnebago (NYSE:WGO) hit 52-week lows after Camping World (NYSE:CWH) cut its outlook, and Chipotle (NYSE:CMG) fell. On the upside, Harley-Davidson (NYSE:HOG) rallied after Citi upgraded it to Buy.

The broader market rose. The Nasdaq Composite gained 286.45 points to a record 27,477.31, and the Nasdaq-100 closed at a record 31,076.44. The S&P 500 rose 51.23 points to 7,773.95, just shy of its summer record, while the Dow added 90.94 points to 51,267.90. The Russell 3000 rose to 4,400.47.

Rates were a headwind for growth stocks. The 10-year Treasury Yield climbed to its highest level since 2002, even after a weak September jobs report showed payrolls rising by only 29,000. That soft data cut bets on an October Fed hike to roughly one in four or less. But the ISM services survey showed prices paid at their highest since July 2022.

One market analyst summed up the backdrop, noting Growth Stocks were rallying because Fed expectations had softened, while the Risk-Free Rate against which those valuations are judged remained exceptionally high. Oil fell, with Brent settling at $100.32 even as the Strait of Hormuz remained effectively closed. Bitcoin hovered around $86,000 in the morning before fading.

What to Watch Next

For DraftKings, investors will watch the company's next Quarterly Report for detail on its prediction-market plans and whether they can deliver the fees BofA expects. Developments in the broader prediction-market space, including new products from exchanges and brokers, will also be in focus.

On the macro calendar, the Fed releases minutes of its September meeting on Wednesday, Oct. 7, at 2 p.m. ET, with PepsiCo (NASDAQ:PEP) and Delta Air Lines (NYSE:DAL) reporting later in the week. For DraftKings, how quickly prediction-market Revenue actually materializes will likely matter more than any of that.