Summary
- TD Cowen has decreased its price target for Strategy by 35%, pointing to Bitcoin's ongoing struggles.
- The investment bank remains optimistic about Strategy’s comprehensive capital management approach.
- Analysts indicated that Strategy's move to secure $2.55 billion in cash should alleviate some investor worries.
On Tuesday, TD Cowen reduced its price target for Strategy (MSTR) by 35%, adjusting its expectations as Bitcoin continues to face challenges in gaining traction.
In a report, analysts led by Lance Vitanza revised their target for Strategy to $260 from $400, citing Bitcoin’s “evident ongoing weakness.” The bank now anticipates the cryptocurrency will reach $100,000 by the end of the year, down from an earlier prediction of $140,000.
Bitcoin's price fell below $60,000 on Tuesday, according to CoinGecko, trading at $58,400, which marks a decline of over 20% in the past month. The cryptocurrency has decreased more than 53% from its all-time peak of over $126,000 set last October.
Shares of Strategy dropped 8.6% to $84.75 on Tuesday, reversing gains after breaking a nine-day losing streak the previous day, as reported by Yahoo Finance. Following the company’s first Bitcoin sale in nearly a year, its stock has plummeted almost 41% from $142.69.
Despite the timing of this update coinciding with a newly announced capital management strategy by the Bitcoin-focused company, analysts stressed that their revised expectations were independent of the recent announcement made on Monday.
They described Strategy’s Digital Credit Capital Framework as beneficial for enhancing credit transparency and capital adaptability, outlining how the firm plans to manage its cash reserves, preferred stock, and its holding of 847,363 Bitcoin in the future.
In conjunction with this framework launch, Strategy reported an increase in cash reserves to $2.55 billion. Recent weeks have seen a focus on the company’s USD Reserve as analysts noted the rising costs associated with Stretch (STRC).
“This strategic decision should significantly help restore confidence in the company’s capacity to endure a prolonged downturn in Bitcoin prices,” the analysts suggested, in light of concerns regarding the sustainability of dividends that Strategy regularly pays on products like STRC.
On Monday, the dividend rate for the preferred stock was increased for the eighth time to 12%, raising Strategy’s recurring expenses. On Tuesday, STRC fell 0.7% to $83.11, remaining below its $100 par value after hitting a record low of $71.25 last week.
By linking adjustments to STRC’s dividend more closely to the management of cash reserves and potential future Bitcoin sales, the firm has made “a modestly positive step toward enhancing price stability and investor confidence in the preferred stock,” the analysts noted.
Additionally, the new framework signifies a transition to “two-way capital allocation,” as the analysts pointed out, with the company’s ability to repurchase $1 billion in common shares and another $1 billion in preferred shares possibly presenting arbitrage opportunities.
They also emphasized Strategy’s new Bitcoin monetization initiative, which allows the firm to sell $1.25 billion worth of Bitcoin to boost its cash reserves. This initiative has formalized the digital asset as a “flexible source of capital” alongside other financial mechanisms, they remarked.
Earlier this month, Strategy's stock price fell after the company sold 32 Bitcoin for $2.5 million. This move was previously communicated as a demonstration of the company's commitment to preferred stockholders, but it raised concerns about future sales among investors.
In a prediction market operated by Decrypt's parent company Dastan, traders estimated a 14% likelihood that Strategy would retain over 1 million Bitcoin by the end of the year, a decrease from 17.5% a week earlier.
Last July, TD Cowen had raised its price target for Strategy to $680, around the time shares were trading above $450. Currently, MSTR shares have dropped over 79% in the past year.