KBW initiated coverage of MicroStrategy with an outperform rating and a $560 price target, citing its unique bitcoin treasury strategy and potential for growth in the Bitcoin ecosystem.
Keefe, Bruyette & Woods ( KBW ) has expressed significant optimism regarding the future prospects of MicroStrategy, formerly known as MicroStrategy Incorporated, attributing its bullish outlook to the company's pioneering and ambitious bitcoin treasury strategy. The research firm initiated coverage of the stock on Thursday with an outperform rating and a price target of $560, representing a 70% premium to Thursday's closing price of $329.62.
KBW analyst Bill Papanastasiou highlighted that MicroStrategy's stock presents an attractive opportunity for investors seeking amplified exposure to bitcoin, coupled with the added advantage of accretive bitcoin acquisitions fueled by highly sought-after security issuances. Furthermore, the firm believes that MicroStrategy's valuation currently exceeds its net asset value.In its recent quarterly financial update released on Wednesday, MicroStrategy disclosed a compelling 2024 bitcoin (BTC) yield of 74.3%, surpassing its previous record of 47.3% achieved in 2021. The company also announced its intention to raise its BTC yield target for each of the next three years to 15% from the previously projected range of 6% to 8%. BTC yield is calculated as the percentage change in the ratio between MicroStrategy's bitcoin holdings and its diluted shares outstanding. KBW also posited that MicroStrategy's inclusion in the prestigious S&P 500 benchmark index could be on the horizon. This speculation stems from the company's adoption in January of the Financial Accounting Standards Board's (FASB) updated accounting standard, which permits companies to recognize unrealized gains as part of their net income. To be eligible for inclusion in the S&P 500, companies must demonstrate positive earnings in the most recent quarter as well as the preceding four quarters. KBW acknowledged that the implementation of the FASB rule will result in a one-time cumulative adjustment of $12.75 billion to the opening balance of retained earnings, as noted by Bernstein on Thursday. Looking ahead, MicroStrategy stands to benefit from the burgeoning potential to generate yield on-chain through the development of applications built upon the Bitcoin network, according to KBW's analyst. Papanastasiou emphasized that a significant value unlock will transpire when applications are developed on the Bitcoin protocol, citing its status as the most secure, decentralized, and valuable public network. MSTR's involvement could position it as a consolidator and strategic director of future ecosystem development, propelling greater utility and use cases, which could ultimately transform Bitcoin into a more productive asset. Furthermore, MicroStrategy's participation could provide a crucial 'bootstrap' for applications that directly compete with other smart contract platforms.
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