DraftKings (DKNG) faces lower growth and increased uncertainty from legislation and prediction markets, Morgan Stanley analysts said in a Tuesday note.

While concerns over prediction markets are "dominating" the narrative, an unfavorable legislative path and ineffective marketing are also key factors impacting growth, analysts said.

Morgan Stanley said that, unlike previous expectations, it now expects DraftKings to slow its investment in prediction markets, which lowers the burn on EBITDA, but also hurts revenue.

Analysts said that while prediction market volumes are getting headlines with about $40 billion to $50 billion in annualized volumes, it is still only 1.8% of the company's equivalent capital at risk.

Analysts said they are lowering the company's 2026 and 2027 EBITDA estimates by 6% and 14%, respectively.

Morgan Stanley retained an overweight rating on the stock but lowered its price target to $40 from $53.

Price: 21.83, Change: +0.02, Percent Change: +0.09