MicroStrategy (NASDAQ:MSTR) is at it once more. The Michael Saylor-led, Bitcoin-hungry company continues to explore new avenues to fund its favorite obsession: buying Bitcoin.
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Recall, alongside its 3Q24 earnings report, MicroStrategy revealed an ambitious new strategy called the 21/21 Plan. This involves raising $21 billion through equity (selling shares) and another $21 billion through various fixed-income instruments, such as debt, convertible notes, and preferred stock, over the next three years. The funds are intended to substantially bolster the company’s Bitcoin holdings.
In 2024, the company funded its bitcoin purchases by issuing stock and convertible bonds. However, on Friday, MicroStrategy announced plans to broaden its capital raising efforts; the company intends to enter the market for perpetual preferred stock – a type of investment that offers dividends but has no set maturity date. Depending on market conditions, MSTR announced plans to raise $2 billion through one or more offerings of perpetual preferred stock, aiming to start doing so in the first quarter of 2025.
Bitcoin’s volatility has often been highlighted by MSTR’s critics as a reason to steer clear of the stock, which basically acts as a leveraged bet on the leading cryptocurrency’s price. However, the company has turned this volatility into an advantage by issuing convertible bonds. These instruments have allowed MSTR to capitalize on investor demand for higher implied volatility, which enhances the appeal of the equity conversion feature embedded in convertible bonds.
Now, by offering perpetual preferred stock, MSTR aims to attract investors such as insurance companies, pension funds, and banks. These institutions favor such instruments for their fixed dividend payments and relatively stable value. The low volatility of perpetual preferred stock resonates with the type of companies that traditionally provide them, such as banks, real estate investment trusts (REITs), and utility firms.
So, is this a good move? It is, says Benchmark’s Mark Palmer, an analyst ranked in the top 3% of Wall Street stock experts.
“We believe MSTR’s plan to tap the perpetual preferred market underscores the shareholder value it has been creating through its treasury operations, which helps to justify the premium to the company’s net asset value (NAV) at which its stock trades,” the 5-star analyst said.
Since MSTR’s preferred stock would be perpetual, it would have no set maturity dates or lump-sum principal repayments. “As such,” Palmer goes on to add, “the securities in essence would offer preferred investors a unique proposition: an imbedded, indefinite call option on a company whose value is based almost entirely on a highly volatile cryptocurrency.”
To this end, Palmer rates MSTR shares a Buy, along with a Street-high $650 price target. Should the figure be met, investors will be pocketing returns of ~71% a year from now. (To watch Palmer’s track record, click here)
None of Palmer’s colleagues have any issues with that take; with a full house of Buys – 8, in total – the stock claims a Strong Buy consensus rating. Going by the $529.57 average price target, a year from now, shares will be changing hands for a ~40% premium. (See MSTR stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
