Flutter Entertainment and DraftKings expected to benefit from online sports betting surge

Needham started off coverage on Flutter Entertainment (NYSE:FLUT) on Monday with a Buy rating. Analyst Bernie McTernan and his team see the company positioned to be the U.S. sports betting and iGaming leader through leveraging its global tech stack and Flutter Edge.

Crucially, McTernan thinks the U.S. total addressable market continues to be larger than anticipated, which he highlighted should pay dividends for the operators that can consolidate market share. The bull case TAM target for the industry from Needham is now a whopping $50 billion. “We see significant earnings power for the consolidated business if this thesis plays out,” advised McTernan.

As far as Flutter Entertainment (FLUT), the leadership position in the U.S. is seen as an increasingly important earnings driver for the company, set to powering 25% global adjusted EBITDA CAGR over the next three years and well over $10 of GAAP earnings in 2027. “This attractive financial profile and leadership position in most countries they operate in is driven by FLUT’s global scale and Flutter Edge which we believe creates a sustainable competitive position, which is backed up by our survey work,” wrote McTernan.

Needham also reiterated its Buy rating on DraftKings (NASDAQ:DKNG) and said the Boston-based company is in a sweet position as another clear leader in the OSB market. McTernan thinks the legislative environment is overall supportive of greater market access, as it’s a win-win for consumers and states.

A key point from Needham that applies to both Flutter Entertainment’s (FLUT) FanDuel and DraftKings (DKNG) is that hold rates are seen moving even higher. Of course, that translates into better profitability for the major operators.