Keefe, Bruyette & Woods (KBW) says shares of MicroStrategy have big upside potential thanks to its novel and ambitious bitcoin treasury strategy. The research firm initiated coverage of the stock Thursday with an outperform rating and price target of $560, or 70% above the Thursday close of $329.62. The stock is an “attractive proxy for investors seeking levered bitcoin exposure with additional torque from accretive bitcoin purchases that are fueled by highly demanded security issuances and a valuation that exceeds net asset value,” analyst Bill Papanastasiou said. On Wednesday MicroStrategy, which this week formally renamed itself “Strategy,” reported a 2024 bitcoin (BTC) yield of 74.3%, surpassing its record of 47.3% from 2021, in its quarterly financial update . It also raised its BTC yield target for each of the next three years to 15% from a range of 6% to 8%. BTC yield measures the percentage change in the ratio between MicroStrategy’s bitcoin holdings and its diluted shares outstanding. KBW also suggested that MicroStrategy’s addition to the benchmark S & P 500 index “could be on the horizon” after the company adopted the Financial Accounting Standards Board’s (FASB) updated accounting standard in January that allows companies to recognize unrealized gains as part of their net income. Companies must show positive earnings in the latest quarter as well as the previous four quarters to be considered for inclusion in the S & P 500. On Thursday Bernstein noted that the adoption of the FASB rule will mean a one-time cumulative adjustment of $12.75 billion to the opening balance of retained earnings. MSTR 1Y mountain MicroStrategy shares over the past year In the long run, MicroStrategy could also benefit from the “opportunity to generate yield on-chain from the development of applications built on top of the Bitcoin network,” the KBW analyst wrote. “A massive value unlock will be when applications are developed on top of the Bitcoin protocol as it is the most secure, decentralized and valuable public network,” Papanastasiou said. “Down the road, MSTR could represent a consolidator and strategic director of future ecosystem development that drives greater utility and use cases, which could help transform Bitcoin into a more productive asset. Strategy’s participation could also help ‘bootstrap’ applications that compete directly with other smart contract platforms.” —CNBC’s Michael Bloom contributed reporting.
