TD Cowen Defends Strategy's Bitcoin Valuation

TD Cowen has addressed critiques regarding the elevated valuation of Strategy, stating that claims suggesting the stock's value should align solely with its Bitcoin holdings are fundamentally flawed. The brokerage argues that the company's ongoing share issuance under its enhanced 42/42 plan actually strengthens investors' claims on Bitcoin rather than diluting them. The net asset value (NAV) premium of Strategy indicates how much its market capitalization exceeds the actual worth of its Bitcoin holdings. Current data reveals that MSTR has an equity value of $124.3 billion against approximately $72 billion in BTC, resulting in an NAV premium of around 72.6%. Critics have labeled Strategy's premium as merely a reflection of a 'greater fools theory', suggesting that investment in Strategy is unwise because Bitcoin returns rely heavily on this premium. However, analysts Lance Vitanza and Jonnathan Navarrete from TD Cowen pointed out many flaws in this reasoning. According to the brokerage, Strategy's premium is logical because it allows the firm to invest cheap capital into Bitcoin, and it increases the Bitcoin per share on a fully diluted basis—something that individual investors and competing companies struggle to achieve. Strategy can yield Bitcoin without a market premium by utilizing preferred stocks and convertible securities, borrowing at a blended rate of just 0.421%, which individual investors cannot access. Looking ahead, Strategy aims to hold 900,000 Bitcoin by 2027. Recently, the company sold over 1.6 million common shares through a $21 billion at-the-market program, raising nearly $740 million in total. Subsequently, it purchased 6,220 Bitcoins at an average price of $118,940 each, achieving a substantial gain without increasing the total shares outstanding. This means that each MSTR share now represents 20.8% more Bitcoin than it did at the start of the year, and over twice the amount from 18 months ago. The analysts believe this intrinsic premium should continue or even expand, as avoiding ETF fees can justify a roughly 20% markup over the long term, with the company's capital flywheel props for future growth. Strategy is also rolling out a new funding initiative. The introduction of Stretch (STRC), a fourth series of perpetual preferred stock, aims to secure additional capital for Bitcoin purchases. As of July 21, the company's Bitcoin holdings totaled 607,770 BTC, solidifying its position as the largest publicly noted holder of Bitcoin significantly. TD Cowen has set a price target of $680 for MSTR and anticipates that the company will amass nearly 900,000 BTC by the end of 2027, representing about 4.3% of all Bitcoin that will ever be mined. Disclaimer: The Block is an independent media outlet delivering news and information. As of November 2023, Foresight Ventures has a majority stake in The Block and invests in other companies within the cryptocurrency sector. The Block operates independently to provide objective insights into the crypto market.