MicroStrategy Ratings: Wall Street Analysts Weigh in on MSTR

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CCN2024/10/01 19:09

By:CCN

Key Takeaways

S&P Global Ratings has upgraded MicroStrategy’s credit rating, reflecting a more positive view of Bitcoin’s ecosystem.
Despite aggressive Bitcoin purchases, MicroStrategy’s capital structure is seen as sustainable due to its debt management and financial policies.
What’s the view of Wall Street experts on MSTR stock?

MicroStrategy ’s bold approach of integrating Bitcoin (BTC) into its financial framework has garnered significant attention from investors and analysts, positioning the company as a key player in the intersection of cryptocurrency and corporate finance.

Here’s what Wall Street analysts and investors think of MSTR stock.

S&P Promotes MicroStrategy

Over the past few years, S&P’s outlook on Bitcoin’s ecosystem has improved, leading to the view that a non-zero Bitcoin price is no longer reliant on favorable market conditions. This, along with higher prices, favorable accounting and regulatory developments, prompted S&P to upgrade MicroStrategy Inc.’s rating to B- from CCC+ and its $500 million senior secured notes to B.

Despite MicroStrategy’s aggressive, debt-funded Bitcoin purchases and its transition to subscription products impacting EBITDA, its capital structure appears sustainable over the next 12 months due to low-interest expenses and no near-term debt maturities.

“Bitcoin remains speculative, but recent regulatory developments, including the launch of Bitcoin ETFs, may help limit price volatility,” S&P said.

If Bitcoin’s price fell to around $20,000 or the company struggled to transition fully to subscription revenue, S&P might lower its rating. Conversely, further improvements in Bitcoin’s ecosystem could lead to an increase in rating.

MicroStrategy decided a few years back that it wanted a mostly recurring revenue model, so it pivoted from selling perpetual license revenue to subscription revenue on its business intelligence (BI) solutions.

S&P has seen this with other technology software companies because they want a more recurring revenue model that will create a stickier product and eliminate some of the lumpiness that comes with perpetual license revenue.

Analysts’ view on MicroStrategy’ stock. l Credit: Nasdaq

Outlook Is Stable

However, it believes that MicroStrategy will soon be able to turn that around. Growth in subscription revenue will help drive low-single-digit percent growth in 2025.

The stable outlook reflects S&P’s expectation that while MicroStrategy’s strategy to pursue debt-funded Bitcoin purchases is aggressive, S&P’s view on Bitcoin’s ecosystem has become incrementally more positive. It does not view a non-zero Bitcoin price as dependent on favorable market conditions.

While the business operation is going through a transition to subscription products, which is hampering EBITDA, given the low-interest expense from its mostly convertible notes and no near-term maturities, analysts believe that MicroStrategy’s business operations and financial policy can sustain its capital structure over the next 12 months.

“We could look to lower our rating if we believed that MicroStrategy’s capital structure was trending toward becoming unsustainable due to the Bitcoin price approaching $20,000. Also, we expect this threshold to increase as the company makes new Bitcoin purchases at higher prices. We could also look to lower our rating if the business operation were not able to fully transition to subscription revenue. This may hamper EBITDA because it could not pay its mandatory debt obligations,” S&P said.

“We could look to raise our rating on MicroStrategy if we had an even more constructive view of Bitcoin’s ecosystem. This could occur if there were even wider adoption of Bitcoin use, improved government regulations, price stabilization, and less price volatility, among others,” it added.

Can MicroStrategy Stock Price Really Outperform Bitcoin?—CCN Reports

For PeerSpot MSTR’s a “Powerful Tool”

According to PeerSpot , MicroStrategy emerged as a powerful tool that promised to streamline and simplify the complex task of handling vast datasets. Its ability to delve deep into data models and present information in a digestible format made it a sought-after solution for many organizations.

For those with established data warehouses, MicroStrategy was a boon. Its user-friendly interface allowed even non-technical users to navigate and manipulate data easily. The platform’s efficient attribute and maze creation process accelerated the development of insightful reports and dashboards.

As of October 2024, the mindshare of MicroStrategy in the Business Intelligence Tools category stands at 3.6%, down from 3.7% compared to the previous year. l Credit: PeerSpot

However, for those starting from scratch, the journey was less straightforward. Without a robust data warehouse, users faced the daunting task of transforming raw data within MicroStrategy itself. This required a significant amount of technical expertise and could be pretty challenging for those without a strong data background.

Moreover, MicroStrategy’s community was relatively small compared to some of its competitors. While this didn’t detract from its capabilities, users might have fewer resources and support options.

Despite these limitations, MicroStrategy remained a valuable asset for many organizations. Its ability to provide in-depth data management and its user-friendly interface made it a compelling choice for those with the right data infrastructure.

With ongoing advancements, its community will likely grow and its capabilities will expand, further solidifying its position in the data management landscape.

Berenberg’s Ambitious Target Price

Berenberg Capital Markets has increased its price target for MicroStrategy, a software firm, from $430 to $510. The firm reiterated its “buy” rating, citing a more favorable environment for institutional Bitcoin adoption .

In a note to clients, Berenberg raised its estimate of MicroStrategy’s Bitcoin holdings’ value to $8.74 billion from $6.27 billion as of late April 2024. This increase reflects the company’s faster-than-expected Bitcoin acquisitions and improved prospects for institutional Bitcoin adoption.

“Based on the faster-than-expected pace at which MSTR has acquired Bitcoins since we initiated coverage of the company on April 27, as well our view that the prospects for institutional adoption of Bitcoin have improved meaningfully in the interim, we are raising our estimate of the value of the company’s Bitcoin holdings as of late-April 2024 to $8.74 billion from $6.27 billion,” the firm said.

Setting a target price at $510 means Berenberg’s view on MSTR stock is notably positive, as the current price is at $168.60 and considering it never surpassed $313 in its history.

The average price target for MSTR is $189.71. l Credit: TipRanks

Canaccord Genuity Reaffirmed Buy Rating

One of the most recent ratings comes from Canaccord Genuity, which confirmed its ‘Buy’ recommendation. However, it lowered its price target from $185 to $173, reflecting a recalibration based on Bitcoin’s recent performance and the company’s Sum of the Parts (SOTP) valuation premium.

The firm’s analysis shows an 11% decline in Bitcoin’s value since the last review. In the same period, MicroStrategy’ s SOTP premium increased by 5%.

Despite the lower price target, Canaccord maintains its valuation approach. This assumes a 20% increase in Bitcoin’s price over the next year and a 15% rise in the software business. But also the continuation of the current SOTP premium.

Notably, MicroStrategy’s equity value premium over its Bitcoin holdings is at a near-record high of 110%, presenting a potential risk. Any reduction in this premium could impact the stock’s value.

The revised $173 target also factors in MicroStrategy’s ongoing Bitcoin acquisitions. Canaccord views the adjustment as a minor response to current Bitcoin spot prices rather than a change in the company’s outlook.

Barclays’ View on MSTR

Barclays analysts initiated research coverage on MicroStrategy (MSTR) in September 2024 with an Overweight rating and a $146 price target. The firm views MicroStrategy as a superior option for investors seeking exposure to Bitcoin through publicly traded companies.

According to Barclays, the firm led by Michael Saylor used cash flows and the balance sheet of its established business intelligence software operations to acquire approximately $13 billion in Bitcoin.

“ MSTR looks like a BTC index fund that is also able to generate its own investment capital, so investors not only gain exposure to the underlying BTC asset price, but also benefit from future self-funded accumulation,” the analysts said in a note.

“And with an average cost of debt (mostly convertible) of around 1.6% and maturities staggered through 2032, MSTR’s strategy appears capable of withstanding significant liquidity stress from potential future ‘crypto winters,’” they added.

MSTR analyst recommendation trends. l Credit: TipRanks

TD Cowen Praises Ability To Acquire BTC

TD Cowen expressed confidence in MicroStrategy by raising its price target to $200 from $195 while maintaining a Buy rating. This update follows MicroStrategy’s recent financial moves, which have enhanced its investment capacity.

In September, the company completed key debt transactions. This allowed it to acquire an additional 7,420 Bitcoins at an average price of $61,750, totaling approximately $458 million. These maneuvers not only expanded Bitcoin’s holdings but also significantly reduced interest expenses.

TD Cowen emphasized that MicroStrategy has bolstered its ability to make future Bitcoin purchases. This positions it as an attractive option for investors seeking exposure to Bitcoin. The company’s strategy of integrating Bitcoin into its financial operations has drawn significant attention. It distinguishes it as a major publicly traded entity with substantial digital asset holdings.

Additionally, MicroStrategy raised $1.01 billion through an upsized offering of convertible senior notes due 2028. A portion of the proceeds will be used to redeem $500 million of its outstanding 6.125% Senior Secured Notes, releasing collateral, including 69,080 Bitcoins.