MidWeek Commentary

HI Market View Commentary 03-04-2024

HI Market View Commentary 03-04-2024

Question: What is Tax Harvesting/Selling

Before taxes people usually take profits= To create cash for paying taxes

What happens at the end of the year typically = Sell losers to offset the gains in the portfolio

Hi Kevin,

Hope all is well and wanted to provide you a quick update for the GS Tax Loss Harvesting SMA, the Tax-Advantaged Core Strategy (TACS).

The linked PDF shows the illustration of an investor that allocated $1MM cash into the strategy in January through the end of Q4 2023. Performance highlights below as of 12/31/2023:

  • Harvestedover $78,032 in realized losses in 2023
  • Maintained index like performance for the year, returning a gross pretax 26.9% vs. 26.3% for the S&P500, outperforming the benchmark by 60 bps (-3.2% net pre-tax returns)
  • Created the potential opportunity to save ~$32k in taxes(Federal only, not state) as a result of losses harvested, leading to the creation of ~430 bps gross after tax and ~50 bps net after tax outperformance to the S&P500 benchmark taking into account the impact from potential tax savings

If you have clients in mind that may potentially benefit from this strategy, we can run a custom analysis on a per client basis to show how to fund an account in this strategy with brokerage assets, highly appreciated stocks, mutual funds/ETFs or underperforming SMA managers in a potentially more tax efficient way.

Sincerely,

Shiv
———————————————————————————–
Goldman Sachs & Co. LLC
71 South Wacker Drive | Suite 400 | Chicago, IL 60606

Thoughts on Tax Selling

 

Managing a Collar Trade:

Stock Ownership

Protective Put

Short Call

 

 

LOWER Highs and LOWER Lows

Bearish and below the 50, 200 SMA

Close to oversold and a bullish rebound

Risk to Reward Technically speaking down to 97.51 = $3.20 Upside to 109 or $8.30

https://www.briefing.com/the-big-picture

The Big Picture

Last Updated: 01-Mar-24 15:26 ET | Archive

There are benefits to investing in a time machine

We are going to let you in on one of the worst-kept investing secrets, but one that needs to be put out there time and again. The S&P 500 is an unbelievable wealth-generating machine.

Sure, it can suck the life and wealth out of you at times, but more often than not, it breathes life and wealth into the portfolio of investors who have the benefit of time on their side.

There’s nothing hyperbolic about that claim. There is empirical data to support it.

70% over the Last 70

In the sports world, a record above .500 is considered a “winning record.” A lifetime batting average above .300 is a ticket to Hall of Fame enshrinement. Tiger Woods won roughly 22% of his starts and is regarded in many circles as the greatest golfer of all time.

It is hard enough to become a professional athlete, let alone win consistently at the highest level of your sport. Tom Brady appeared in 10 Super Bowls. He won seven of them for a .700 winning percentage. That is an extraordinary winning percentage on the game’s biggest stage — even a New York Giants fan would have to admit that, and the Giants delivered two of Brady’s three Super Bowl losses.

You know what the winning percentage of the S&P 500 is over the last 70 years? It is 70%.

Between 1953 and 2023, there were 21 years when the S&P 500 registered an annual decline in price or finished the year flat. It’s not a perfect track record by any means, but with the S&P 500 hitting an all-time high this past week, it is not an index that wallows long in losing pity.

Over that 70-year period, there were only three instances (1969-1970, 1973-1974, and 2000-2002) when it suffered consecutive losing years (and just barely in 1970 when it lost 0.07% after declining 11.36% in 1969).

The 2000-2002 period, admittedly, was a doozy as the dotcom bubble popped. It took several years to reclaim all of those losses, only to see them fall by the wayside again in the Great Financial Crisis when the S&P 500 declined 38.5% in 2008.

Again, it took several years to recover what was lost in that 2008 crash, but recover the S&P 500 did, just like it did after the COVID crash of 2020.

Timing Is of the Essence

We have shared similar perspective over the years in this column, acknowledging that an investor shouldn’t try to time the market, but that timing is a critical element when it comes to the stock market.

To that end, the timing of the dotcom crash was terrible for anyone who had just retired in 1999. It was not bad timing for your author, who was in his late twenties then and had more investing time on his side.

It is important to make that distinction so as not to sound Pollyannaish about the stock market. It isn’t always a winning proposition, and when it goes down, it often goes down a lot faster than it goes up. Moreover, it takes more to make up the ground that was lost. For instance, a move by the S&P 500 from 5,000 to 4,500 is a 10% decline, but to get back to 5,000 from 4,500 takes an 11% gain.

One thing that history has shown, however, is that the S&P 500 always recovers. It just takes longer in some periods than others, but it always recovers thanks to the earnings power of publicly listed companies.

This is an important reminder today as some market participants fret about the semblance of an AI bubble forming and the market-cap-weighted S&P 500 sporting a premium valuation.

With gains in 16 of the last 18 weeks, and an approximately 25% gain over that span, it stands to reason that the S&P 500 is due for a pullback, if not a correction generally defined as a 10% pullback from a prior high.

So, if there is a near-term cash need that can only be met by selling stocks, then timing will be of the essence when it comes to a risk-reward assessment. Would one be willing to chase a reward of maybe another few percent in the near term if the risk is a possible 10% correction (or more) in the near term?

Every individual investor has to answer that question for themselves based on what they know their near-term cash needs are going to be if their only outlet for raising cash is to sell stocks. So, again, timing matters at specific times just as much time matters for long-term investment success.

What It All Means

Fidelity recently reported that it saw an 11.5% year-over-year increase in 2023 amongst its account holders who became 401(k) millionaires, emphasizing that their path to millionaire status was paved by “staying the course and taking a long-term approach.”

Market conditions, of course, also helped. The S&P 500 gained 24.2% in 2023, but staying the course with regular contributions over the years and a dollar-cost averaging approach left the newly-minted 401(k) millionaires in a favorable position to capitalize on that move.

You won’t see gains like that every year — or even in most years. The average gain over the last 70 years is just under 9.0%, according to FactSet. If you had a 9% return every year, your investment would roughly double every eight years using the Rule of 72 (take 72 and divide by the expected rate of return to determine how long it will take an investment to double).

Investing in the stock market is not a zero-risk proposition. The historical record shows, however, that investing in the S&P 500 Index is a risk worth taking if one can stand the test of time — and you will be tested.

It is natural, with the S&P 500 sitting at record highs, after a 25% gain in a short period of time, to think that a test of some kind is coming. In that light, an investor will need to weigh the timing for when they might need their stock investments to be a source of funds against the time they have to keep investing in a time machine that is great in generating wealth.

Patrick J. O’Hare, Briefing.com

 

Earnings dates:

COST          3/07

MU              3/30 est

 

Where will our markets end this week?

Lower

 

DJIA – Bullish

SPX –Bullish

COMP – Bullish

 

 

Where Will the SPX end Feb 2024?

03-04-2024            -2.0%

 

Earnings:   

Mon:           

Tues:            TGT, ROST

Wed:            ANF, FL

Thur:           AEO, BJ, BURL, KR, DOCU, LOCO, GPS, COST

Fri:              GCO

 

 

Econ Reports:

Mon:           

Tue              Factory Orders,

Wed:            MBA, ADP Employment, Wholesale Inventories, Beige Book, JOLTS

Thur:           Initial Claims, Continuing Claims, Consumer Credit, Productivity, Unit Labor Costs, Trade Balance

Fri:               Average Workweek, Non-Farm Payroll, Private Payrolls, Hourly Earnings, Unemployment Rate

 

How am I looking to trade?

 

www.myhurleyinvestment.com = Blogsite

info@hurleyinvestments.com = Email

 

Questions???

 

 

https://www.cnbc.com/2024/03/04/apple-hit-with-more-than-1point95-billion-eu-antitrust-fine-over-music-streaming.html

Apple hit with more than $1.95 billion EU antitrust fine over music streaming

PUBLISHED MON, MAR 4 20247:14 AM ESTUPDATED 6 HOURS AGO

Arjun Kharpal@ARJUNKHARPAL

KEY POINTS

  • The European Commission, the European Union’s executive arm, on Monday hit Apple with a 1.8 billion euro ($1.95 billion) antitrust fine.
  • The Commission said Apple abused its dominant position on the market for the distribution of music streaming apps.
  • In a fiery response to the fine, Apple said Spotify would stand to gain the most from the EU pronouncement.

The European Commission, the European Union’s executive arm, on Monday hit Apple with a 1.8 billion euro ($1.95 billion) antitrust fine for abusing its dominant position in the market for the distribution of music streaming apps.

The commission said it found that Apple had applied restrictions on app developers that prevented them from informing iOS users about alternative and cheaper music subscription services available outside of the app.

Apple also banned developers of music streaming apps from providing any instructions about how users could subscribe to these cheaper offers, the commission alleged.

This is Apple’s first antitrust fine from Brussels and is one of the biggest dished out to a technology company by the EU.

Apple shares were down around 2.5% in morning trading in the U.S.

The European Commission opened an investigation into Apple after a complaint from Spotify in 2019. The probe was narrowed down to focus on contractual restrictions that Apple imposed on app developers which prevent them from informing iPhone and iPad users of alternative music subscription services at lower prices outside of the App Store.

Apple’s conduct lasted almost 10 years, according to the commission, and “may have led many iOS users to pay significantly higher prices for music streaming subscriptions because of the high commission fee imposed by Apple on developers and passed on to consumers in the form of higher subscription prices for the same service on the Apple App Store.”

Apple response

In a fiery response to the fine, Apple said Spotify would stand to gain the most from the EU pronouncement.

“The primary advocate for this decision — and the biggest beneficiary — is Spotify, a company based in Stockholm, Sweden. Spotify has the largest music streaming app in the world, and has met with the European Commission more than 65 times during this investigation,” Apple said in a statement.

“Today, Spotify has a 56 percent share of Europe’s music streaming market — more than double their closest competitor’s — and pays Apple nothing for the services that have helped make them one of the most recognisable brands in the world.”

Apple said that a “large part” of Spotify’s success is thanks to the Cupertino, California-based giant’s App Store, “along with all the tools and technology that Spotify uses to build, update, and share their app with Apple users around the world.”

Apple said that Spotify pays it nothing. That’s because instead of selling subscriptions in its iOS app, Spotify sells them via its own website. Apple does not collect a commission on those purchases.

Developers over the years have spoken out against the 30% fee Apple charges on in-app purchases.

Spotify in a statement called the commission’s decision “an important moment in the fight for a more open internet for consumers.”

“Apple’s rules muzzled Spotify and other music streaming services from sharing with our users directly in our app about various benefits—denying us the ability to communicate with them about how to upgrade and the price of subscriptions, promotions, discounts, or numerous other perks,” Spotify said.

“Of course, Apple Music, a competitor to these apps, is not barred from the same behaviour.”

Apple fine just a ‘parking ticket’

The commission said Apple prevented developers of music streaming apps from informing their iOS users within their apps about prices of subscriptions or offers available elsewhere.

App developers could not include links in their apps leading iOS users to the app developers’ websites where alternative subscription could be bought, the commission alleges.

The EU’s executive arm also said Apple prevented app developers from contacting their own newly acquired users — for example via email — to inform them about alternative pricing options.

In a press briefing, EU antitrust chief Margrethe Vestager qualified the basic amount of the fine for Apple, excluding the 1.8 billion euro lump sum, as “quite small” and likened it to a “speeding ticket, or a parking ticket” relative to the company’s scale.

“When Apple imposes these anti-steering provisions on the music provider, they as developers have no other choice than to either accept them or abandon the App store. Apple with its App Store currently holds a monopoly,” Vestager said.

She added the commission has ordered Apple to remove the so-called anti-steering provisions and to “refrain from similar practices in the future.”

EU scrutiny on tech giants rises

The fine will ramp up tensions between Big Tech and Brussels at a time when the EU is increasing scrutiny of these firms.

Last year, the commission designated Apple among other tech firms like Microsoft and Meta as “gatekeepers” under a landmark regulation called the Digital Markets Act, which broadly came into effect last year.

The term gatekeepers refers to massive internet platforms which the EU believes are restricting access to core platform services, such as online search, advertising, and messaging and communications.

The Digital Markets Act aims to clamp down on anti-competitive practices from tech players, and force them to open out some of their services to other competitors. Smaller internet firms and other businesses have complained about being hurt by these companies’ business practices.

These laws have already had an impact on Apple. The company announced plans this year to open up its iPhone and iPad to alternative app stores other than its own. Developers have long complained about the 30% fee Apple charges on in-app purchases.

Vestager fired a warning shot to Apple in regard to the DMA.

“In a couple of days on the 7th of March, Apple will have to comply with the full list of dos and don’ts under the DMA. Among others, Apple can no longer impose rules such as the anti-steering obligations … and this holds for any app on the App Store, not just music streaming apps.”

— CNBC’s Ryan Browne and Ruxandra Iordache contributed to this article.

https://finance.yahoo.com/news/beyond-billionaires-meet-magnificent-seven-085800613.html

Meta Platform Stock’s New Dividend: Everything You Need to Know

Daniel Sparks, The Motley Fool

Sat, Mar 2, 2024, 7:31 AM MST

Meta Platforms (NASDAQ: META) stock has surged this year, rising more than 35%. This adds to the stock’s 194% gain last year as shares recovered from getting slammed in 2022.

Why is Wall Street scrambling to buy Meta stock? Among other things, the social network specialist’s accelerating revenue growth, improving earnings, a huge share repurchase program, and a recently announced dividend. Here’s a closer look at how the company’s strong financial momentum has management returning heaps of cash to shareholders.

A strong backdrop for a quarterly dividend

Reviewing Meta’s financials shows that the company probably could have been paying a dividend for quite some time. Sure, Meta’s free cash flow, or its cash flow left over after regular operations and capital expenditures are taken care of, took a huge hit in 2022, declining more than 50% year over year. But free cash flow for the year was still at $19 billion.

To management’s credit, Meta did return capital to shareholders during 2022, albeit indirectly through share repurchases. The company repurchased $31.5 billion worth of its own stock.

So you can’t say that Meta has been stingy with its cash. On the contrary, it has been aggressively returning it to shareholders. It just wasn’t paying a dividend — yet.

The company’s 2023 results probably solidified management’s confidence in paying a dividend. Free cash flow didn’t just recover but hit a record high of nearly $44 billion for the year. Additionally, the company’s cash and marketable securities swelled to $65.4 billion by the end of 2023. This mountain of cash was far in excess of its $18.4 billion of debt — a debt load that could be eliminated quickly if management wanted to, using less than half of the company’s annual free cash flow.

All of this strong cash flow was supported by impressive top-line momentum as the company’s revenue-growth rates started accelerating. Revenue in the company’s fourth quarter rose 25% year over year — much better than the 4% year-over-year decline Meta reported in the year-ago quarter.

The icing on the cake? Meta grew its total 2023 revenue 16% while its operating costs and expenses increased just 1% year over year. Talk about operating leverage! This disciplined cost control as part of what management called the “year of efficiency” helped fuel even more powerful cash generation.

Meta is a cash cow that should be paying a dividend. Even more, the company has the cash flow to both repurchase lots of stock and pay a quarterly dividend — and that’s exactly what management is doing.

Meet Meta’s dividend

Against that backdrop, in February, Meta announced an arguably overdue quarterly dividend of $0.50 per share. This equates to $2 annually, giving Meta a dividend yield of 0.4%.

The first quarterly dividend will be paid on March 26 to shareholders of record on Feb. 22.

Commenting on this new dividend, Meta Chief Financial Officer Susan Li said it’s a further extension of management’s prioritization of returning capital to shareholders. It “really just serves as a nice complement to the existing share repurchase program,” Li noted during the company’s fourth-quarter earnings call. It gives Meta “a more balanced capital return program and some added flexibility in how we return capital in the future.”

Given the company’s significant free cash flow and its war chest of cash, this dividend payment will likely grow over time. But management said it expects to prioritize share repurchases over its dividend. Indeed, the company also said in February that it authorized an additional $50 billion for share repurchases — and that’s on top of the approximately $31 billion it had left in its previous authorization, as of the end of 2023.

https://finance.yahoo.com/news/wolverine-under-armour-vf-progressing-190204651.htmlhttps://finance.yahoo.com/news/wolverine-under-armour-vf-progressing-190204651.html

How Wolverine, Under Armour and VF Are Progressing On Their Turnaround Plans, According to Analysts

Shoshy Ciment

Fri, Feb 23, 2024

After a rocky 2023, some major shoe brands say they are finally turning the corner.

In the last few weeks, executives from Wolverine WorldwideUnder Armour and VF Corporation said they are progressing on their respective plans — which were laid out in 2023 — meant to turn around sagging parts of their businesses.

Here’s a look at where these three major shoe companies stand on their progress plans— and what analysts say to expect in the short and long term.

VF Corporation: An uncertain timeline

VF Corp., the parent company to Vans, The North Face, Supreme and more brands, in October laid out a strategic business transformation plan, part of which involves revitalizing the Vans brand with a new president and reviving business in the U.S.

In a call with analysts earlier this month, VF chief executive officer Bracken Darrell said that he is “energized by the progress of Vans,” though declined to provide a specific timeline for when the struggling brand would return to growth.

In a Feb. 14 note giving the company a “neutral rating,” BTIG analyst Janine Stichter said that while the company seems determined to improve, the timing on broader progress is “still a question mark.”

“We agree that much of the underperformance stems from product (an area where Mr. Darrell has historically excelled in reinvigorating) and org structure, and see a path for Vans and The North Face to return to growth,” Stichter said. “However, what remains less certain, by management’s own admission, is the timeline to improvement, especially as long lead times limit the ability to make a significant near-term impact.”

Under Armour: Progress in sight

Under Armour CEO Stephanie Linnartz said in a call with investors on Feb. 8 that the company’s strategy to revamp business — which includes growing sales in North America — was progressing. Within footwear, Under Armour is investing in a new design identity that hones in on more casual, lifestyle looks and is looking to partner with more high-end distribution partners to drive demand to this category.

According to Williams Trading analyst Sam Poser, Under Armour’s efforts are beginning to come to fruition in subtle ways.

“We are slowly beginning to see small improvements, and expect to continue to see improvements in Under Armour’s product offerings, and better defined allocation and segmentation strategies,” he wrote in a Feb. 8 note. “Those improvements, in our view, will lead to a stronger Under Armour brand, and position the company for a positive and profitable growth inflection in North America.”

UBS analyst Jay Sole also had a positive outlook on Under Armour’s transformation potential in a note following the company’s Q3 earnings release in February.

“We think the company has taken a number of actions aimed toward revamping product innovation and brand loyalty,” Sole wrote. “We believe Under Armour will start to realize benefits from these strategic moves over the next 12 months.”

Wolverine Worldwide: Murky visibility

Wolverine Worldwide, which owns the Merrell, Saucony and Sweaty Betty brands, said this week that it finished 2023 with revenue and earnings that were in line with its guidance. Inventory and debt levels were also better than expected, after months of aggressive divestitures and cost cutting measures.

CEO and president Chris Hufnagel said in a statement that the company is “effectively executing” its transformation plan with “great pace” and has largely completed the stabilization phase of the turnaround stage. Hufnagel said he expects the company to drive “an inflection of growth in the back half of 2024” which will set the brands up “to accelerate into 2025.”

Stifel analyst Jim Duffy said in a Wednesday note that this timeline for growth is “plausible given easing compares, cleaner inventories and a cleaner marketplace, but visibility remains challenging.”

“Wolverine remains a show-me story,” Duffy wrote. “We expect upside to shares [to be] limited until visibility to inflection improves.”

According to UBS analyst Mauricio Serna, Wolverine will likely be able to turn see strong results with its turnaround plan, “but the evolution of its model will take time.”

“Wolverine has a high exposure to the slow-growing wholesale channel,” he said in a Thursday note. “The good news is many of its channels are capable of enduring retail disruption.”

https://www.tipranks.com/news/load-up-says-morgan-stanley-on-disney-and-draftkings-stocks

‘Load Up,’ Says Morgan Stanley on Disney and DraftKings Stocks

Michael MarcusMar 04, 2024, 12:04 PM

Recent months have seen both good and bad news for the economy. On the positive side, the pace of inflation has come down from its post-pandemic highs, and appears to have leveled off near 3%. On the negative side, that remains higher than the Fed’s target rate, and combined with continued fiscal stimulus – read, high government deficit spending – it doesn’t leave much room for the Fed to cut back on interest rates.

The result, according to Morgan Stanley’s Mike Wilson, chief US equity strategist, is an environment in which stocks are gaining, but on a narrow base. The top 1% is reaping most of the benefits, and smaller stocks face higher risks.

Wilson sums up the issues, and a possible solution, noting: “The recent hotter than expected inflation reports suggest the Fed may not be able to deliver the necessary rate cuts for the markets to broaden out – at least until the government curtails its deficits and stops crowding out the private economy.  Parenthetically, the funding of fiscal deficits may be called into question by the bond market when the reverse repo runs out later this year. Bottom line: despite investors’ desire for the equity market to broaden out, we continue to recommend investors focus on high-quality growth and operational efficiency factors when looking for stocks outside of the top five which appear to be fully priced.”

Wilson’s colleagues among the Morgan Stanley stock analysts are following his lead. Prominent among the ‘quality growth and operationally efficient’ shares they recommend are Disney (NYSE:DIS) and DraftKings (NASDAQ:DKNG). These stocks come from wildly different backgrounds and present investors with wildly different opportunities. However, a closer look at their details and the comments from Morgan Stanley may show just why the bank is tagging them.

Walt Disney

Let’s kick off with the globally recognized powerhouse, Disney. Founded in 1923, this iconic institution has evolved into a titan of entertainment beloved by audiences of all ages. Investors are certainly pleased, with Disney shares soaring by 26% year-to-date, riding the wave of this year’s bullish market trend.

The company’s business is built on three main segments: Disney Entertainment, ESPN, and Disney Experiences. The Disney Entertainment segment encompasses the company’s content and media businesses, including Disney Studios, Disney Streaming, and Disney Platform Distribution. Moreover, the Entertainment segment oversees the company’s iconic characters, songs, and associated spin-off products and marketing. Disney’s ESPN division covers the company’s sports content and other related products, including various sports experiences. The third division, Disney Experiences, includes the company’s theme parks in California, Florida, and internationally, as well as the Disney cruise line, and various consumer products, games, and publishing endeavors.

Disney’s journey has not been without its challenges. The company faced significant pressure following a string of movie flops last year and controversial content decisions. However, Disney’s confidence became evident when it reinstated its dividend in December, after suspending it in 2020. In its most recent declaration on February 7, the company announced a noteworthy 50% increase in the dividend payment, raising it to 45 cents per common share. This new, elevated dividend is scheduled for payment on July 25th.

The dividends alone would not have boosted the stock – but they were accompanied by a solid earnings report this past February, covering fiscal first quarter of 2024. The company reported revenue in the quarter of $23.5 billion, described as comparable to the prior-year first quarter, and just 1.1% off of expectations. The bottom line was better. At $1.22, the non-GAAP diluted EPS was up from 99 cents one year earlier – and it beat the forecast by 18 cents per share.

Morgan Stanley analyst Benjamin Swinburne talks about how Disney achieved these results, noting particularly that the parks remain a solid revenue generator, and that streaming is on track to turn profitable in the near-term. He writes, “We raise estimates and our PT to reflect a more rapid and confident path to streaming profits in the quarters and years ahead. By the end of FY24, the two most impactful businesses to DIS shares should be inflecting – with streaming turning profitable and Parks growth accelerating… Recent results, mgmt actions, and a stable macro increase our conviction in a multi-year ~20% adj. EPS CAGR outlook for Disney, w/ CY25 adj. EPS nearing $6.”

This is an optimistic bar, but Swinburne describes it as ‘realistic optimism,’ and gives the Disney shares an Overweight (i.e. Buy) rating, with a $135 price target that points toward a one-year upside potential of ~19%. (To watch Swinburne’s track record, click here)

Overall, DIS holds a Moderate Buy consensus rating from Wall Street analysts, derived from 22 ratings comprising 17 Buys, 4 Holds, and 1 Sell. The shares are priced at $113.40 and their average price target of $117.90 suggests a modest gain of ~4% in the next 12 months. (See Disney stock forecast)

DraftKings

The next Morgan Stanley pick is DraftKings, a fast-growing company from the world of online sports betting and fantasy sports leagues. The company is well-known for its online sportsbooks, which provide a full package of betting options for sports fans. These include coverage of most professional sports leagues, domestically and internationally, including football, baseball, basketball, hockey, and international soccer.

The company’s fantasy sports leagues give players options to build ‘dream teams’ and bet on their collective performances – fantasy gamers like having the results depend on their own pre-game choices. DraftKings operates in nearly half the states of the Union, and has begun expanding its activities to include some online casino gaming options.

Over the past few years, DraftKings has seen an upward trend in its revenues, based on the increasing popularity of online gaming in general and sports betting in particular. This is clear in the annual revenue totals; the company brought in $2.24 billion at the top line during 2022, and followed that with $3.66 billion in revenue for 2023. The company has followed a simple strategy to build this success: it builds on sports fans’ natural excitement for the games, and convinces them to place bets. It’s been a winning bet for DraftKings.

The company has made recent moves to expand that bet, through its acquisition agreement, announced in February of this year, with Jackpocket. Jackpocket is a leading player in the US online lottery segment, offering its customers a popular lottery app. DraftKings, under the agreement, will acquire Jackpocket for $750 million, with 55% of that paid in cash and 45% of the transaction conducted in stock. The deal is expected to close during the second half of this year, and DraftKings projects that, by fiscal 2026, Jackpocket will drive an additional $60 million to $100 million in adjusted earnings.

Those added earnings will come on top of what DraftKings already brings in. The company reported its fiscal fourth-quarter 2023 results in February, with a quarterly revenue of $1.23 billion, up 44% year-over-year. However, it fell $10 million short of the forecast. DraftKings ended both Q4 and 2023 with cash and liquid assets totaling $1.27 billion, an important factor to consider given the upcoming payments associated with the Jackpocket acquisition.

All of this led Morgan Stanley analyst Stephen Grambling to take an upbeat position on DKNG, writing of the sports betting company: “While 4Q results missed consensus expectations, guidance commentary combined with continued improvements in structural hold and its acquisition of Jackpocket revealed several factors that will continue to propel upside to DKNG consensus estimates… DKNG’s continued operational execution, inflection to positive FCF/EPS, and optimization of the balance sheet should continue to drive the stock higher.”

For Grambling, this adds up to an Overweight (i.e. Buy) rating, and his $49 price target implies an upside potential of ~10% on the one-year horizon. (To watch Grambling’s track record, click here)

Overall, there is a Strong Buy consensus rating on DKNG shares, based on 27 recent analyst reviews that break down to 24 Buys, 2 Holds, and 1 Sell. These shares are selling for $44.71 and their $49.15 average target price is practically the same as Grambling’s. (See DraftKings stock forecast)

To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that unites all of TipRanks’ equity insights.

Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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