- MSTR and ASST shares rose after hours following Bitcoin’s jump to $70,000.
- B. Riley also initiated coverage on Strategy and Strive with a ‘Buy’ rating.
- Analyst Fedor Shabalin said the only risk is that Bitcoin’s gains need to remain higher than the cost of the dividends Strategy is paying investors.
Strategy (MSTR) and Strive Asset Management (ASST) rose in overnight trade on Monday after B. Riley Securities initiated coverage with a ‘Buy’ rating amid Bitcoin’s (BTC) rally to $70,000.
MSTR’s stock gained as much as 1.55% after hours, following a jump 4.06% in regular trade. Meanwhile, ASST’s stock rose 1.29% in overnight trade, recovering from a dip of 2.18% during the day. On Stocktwits, retail sentiment around both companies trended in ‘bullish’ territory over the past day.
Meanwhile. Bitcoin's price rose 3.6% in the last 24 hours to cross $70,000. Retail sentiment around the apex cryptocurrency continued to trend in 'bullish' territory over the past day.
Digital Credit Is ‘Superior’ To Alternatives
B. Riley said it's bullish on Strategy and Strive’s ‘Digital Credit’ approach to borrow money to fund its Bitcoin purchases, but warned that its success is contingent on BTC’s price beating the cost Strategy bears to pay out dividends to its investors.
“We believe the dividend yields offered by MSTR's and ASST's preferred instruments (currently 8.0%-12.5%) are meaningfully superior to most traditional yield-oriented alternatives,” wrote analyst Fedor Shabalin. “We expect the attractive yield to increasingly draw income-focused investors seeking consistent, above-market cash distributions.”
Even under more conservative BTC return assumptions relative to historical performance, the spread between BTC's long-term CAGR (~62%) and the cost of preferred capital (~8.0%-12.5%) provides justification for the DAT model for ASST and MSTR, in our opinion.
What Are SATA and STRC?
Strive At-The-Money Perpetual Preferred Stock (SATA), Strategy's Variable Rate Series A Perpetual Stretch Preferred Stock (STRC), and Series F Perpetual Preferred Stock (STRF) fund Bitcoin purchases for Strive and Strategy while paying out with fixed dividends to investors.
SATA offers an initial annual dividend rate of 12%, higher than STRC's 10.5%, and targets a trading range of $95 to $105 per share as compared to STRC's tighter band of between $99 and $100.
The strategy allows the companies to acquire more Bitcoin without diluting their common stock. Strategy is currently the largest corporate holder of Bitcoin with 738,731 BTC in its coffers. Meanwhile, ASST has around 13,131 BTC on its balance sheet.
MSTR Stock Price Target
B. Riley put a price target of $175 on MSTR’s stock, which implies a potential upside of nearly 26% from Monday’s closing. The average price target for MSTR’s stock is $394.38, implying a potential upside of 183%, according to Koyfin data. Out of the 14 analysts covering the stock, 13 have given the shares a ‘Buy’ or ‘Buy’-equivalent rating, with only one recommending ‘Hold’.
Read also: Bitcoin Jumps To $70K – Crypto Rallies After Trump Says Iran War Will Be Over ‘Very Soon'
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