By Nate Wolf

As Wall Street sells sports-betting stocks in response to growing competition from prediction markets, analysts at Berenberg are counseling investors to buy.

The firm upgraded DraftKings stock to Buy from Hold, lowering its target for the price to $43 from $45. The pullback in shares has created a buying opportunity, Berenberg argued in a research note, especially because the legality and future of prediction markets remain unclear.

DraftKings shares were up 1.9% to $34.56 on Thursday. The stock had dropped 10 of the 12 sessions through Wednesday, shedding 21% over that period.

"We view the recent sell-off in the shares as unjustified," wrote analyst Jack Cummings.

Enthusiasm around prediction markets drove much of that decline. The New York Stock Exchange said Tuesday that it would invest up to $2 billion in Polymarket, the prediction-market platform that may soon be available to U.S. traders. It had barred them since a 2022 settlement with the Commodity Futures Trading Commission.

The prior week, Tarek Mansour, the CEO of fellow prediction market Kalshi, said daily trading volume hit a record after a weekend of NFL and college football games.

Kalshi and Polymarket allow users to trade federally regulated "event contracts" on yes/no questions. Those questions often closely resemble sports gambling. An example is "will the Buffalo Bills win the Super Bowl?"

Berenberg isn't sure prediction markets present a significant threat to mobile gambling apps. While Kalshi and its ilk can provide better odds than traditional bookmakers, contract fees can reduce the amount of money consumers collect when they win, sometimes making apps like DraftKings and FanDuel the better choice, Berenberg found.

The legal environment is also murky. While the CFTC has taken a softer stance toward prediction markets under the Trump administration, it still hasn't issued a definite decision on their legality, Berenberg noted. Kalshi is also embroiled in lawsuits with three states seeking to enforce state gambling laws.

"In a worst-case scenario where sports event contracts are ratified and become widespread, but the betting operators are unable to offer the products, there could be more competition," Cummings wrote. "But we view the quality of the online sports-betting product as a moat."

DraftKings has performed well in fiscal 2025, with revenue growth accelerating each of the last two quarters and yearly net income expected to turn positive for the first time. Berenberg expects strong profit growth in the coming years.

The firm also reiterated a Buy rating on Flutter Entertainment, the owner of FanDuel. New York-listed shares of Flutter were down less than 0.1% on Thursday.

Benchmark analyst Mike Hickey similarly cut his price target to $43 from $53 for DraftKings in a research note last week, but maintained a Buy rating. Sentiment around the company would be grim in the short term, Hickey said, in part because results of sporting events in the third quarter are likely to hurt its financial performance.

"We would be opportunistic when the bleeding stops," Hickey said.

Write to Nate Wolf at nate.wolf@barrons.com

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October 09, 2025 11:05 ET (15:05 GMT)

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