TD Cowen Slashes MicroStrategy Price Target by 35% Amidst Bitcoin Weakness

In brief

TD Cowen lowered its price target for Strategy by 35%, citing Bitcoin's lingering weakness.

The investment bank expressed a positive outlook on Strategy's sweeping capital management framework.

Analysts said Strategy's decision to shore up $2.55 billion in cash should address some investor concerns.

TD Cowen slashed its price target by 35% for shares of Strategy (MSTR) on Tuesday, recalibrating expectations as Bitcoin continues struggling to build momentum.

Analysts led by Lance Vitanza lowered their price target for Strategy to $260 from $400 to reflect Bitcoin’s “observed ongoing weakness,” according to a note. The investment bank now foresees the digital asset hitting $100,000 by year’s end, as opposed to $140,000 previously.

The leading digital asset by market cap fell back below $60,000 on Tuesday, according to CoinGecko. At $58,400, its price had tumbled more than 20% over the past month. Bitcoin has now fallen more than 53% from an all-time high mark above $126,000 set last October.

Shares of Strategy fell 8.6% to $84.75 on Tuesday, shedding gains after snapping a nine-day losing streak the day before, according to Yahoo Finance. Since Strategy sold Bitcoin roughly a month ago, for the first time since 2022, the firm’s stock has tumbled nearly 41% from $142.69.

Although the update comes on the heels of a capital management framework unveiled by the Bitcoin-buying firm this week, the analysts emphasized that their expectations were renewed independently of the company’s sweeping announcement on Monday.

In fact, they described Strategy’s Digital Credit Capital Framework as “a positive for credit visibility and capital flexibility,” given it outlines how the company intends to manage its cash reserves, flagship preferred stock, and stockpile of 847,363 Bitcoin moving forward.

Alongside the framework’s adoption on Monday, Strategy signaled that its cash reserves had expanded to $2.55 billion. In recent weeks, the company’s so-called USD Reserve has come into focus as analysts have pointed to ballooning costs associated with Stretch (STRC).

“This tactical move should go a long way toward restoring confidence in the company’s ability to weather a protracted Bitcoin downturn,” the analysts argued, referencing concerns around the durability of dividends that Strategy routinely pays on products like STRC.

On Monday, the preferred stock’s dividend rate was hiked for an eighth time to 12%, increasing Strategy’s recurring costs. On Tuesday, STRC fell 0.7% to $83.11, lingering below its $100 par value after falling to a record low of $71.25 last week.

By linking STRC’s dividend adjustments more explicitly to the management of Strategy’s cash reserves and future Bitcoin liquidations, the firm took “a modestly positive step toward improving price stability and investor confidence in the preferred stock,” the analysts wrote.

What’s more, Strategy’s framework marked a shift toward “two-way capital allocation,” the analysts wrote, noting that the company’s ability to repurchase $1 billion in common shares and $1 billion in preferred shares may present arbitrage opportunities.

The analysts highlighted Strategy’s new monetization program for Bitcoin, under which the firm can sell $1.25 billion worth of Bitcoin to top off its cash reserves. The initiative formalized the digital asset as a “flexible source of capital” alongside other levers, they added.

Strategy’s stock price tumbled early this month after the firm sold 32 Bitcoin for $2.5 million. The move was telegraphed in advance as a way for the company to show its commitment to preferred stockholders, but it stoked uncertainty about future sales.

On Myriad, a prediction market owned by Decrypt parent company Dastan, traders penciled in a 14% chance that Strategy would hold more than 1 million Bitcoin before year’s end. That marked a decrease from 17.5% a week ago.

Last July, TD Cowen raised its Strategy price target to $680, around the time shares were trading above $450. MSTR shares are now down more than 79% in the last year.