This Analyst Sees Over 150% Upside in Two Blockchain Stocks

B.Riley analyst Lucas Pipes has raised estimates and price targets for two Buy-rated stocks Marathon Digital Holdings (NASDAQ: MARA) and Riot Blockchain (NASDAQ: RIOT).

The analyst takes note of the slower global network hashrate recovery after initially thinking that the recovery will be faster amid the regulatory crackdown on digital asset mining in China.

“At the time, network hashrates fell from a peak of 180.7 EH/s in mid-May to merely 84.8 EH/s in early July. Since this trough in network hashrates, growth rates have been above the pre-crackdown trend line but still well below our prior expectations. For example, we had been modeling 3Q21 network hashrates of 145 EH/s. With just two weeks left in the quarter, we now expect the average 3Q21 level to be closer to 120 EH/s. Looking out, we are now modeling that about 75% of Chinese computing power is re-domiciled by mid-2022 and that at that time growth rates recede to the prior trend. This puts our average 2022 network hashrate assumption at 200 EH/s, down from 226 EH/s previously. We are maintaining our prior 2023 assumption of 3% quarterly growth rates. We would note that our network hashrate assumptions are based on an average bitcoin price of $45,000,” the analyst said in a client note.

The analyst has raised price targets on MARA to $87.00 per share from the prior $54.00. The model now assumes a $45,000 BTC price, compared to the prior $35,000. The average Q3 BTC price is now set at $42,000.

“While these adjustments represent a large increase from our prior estimates, we believe our model is still conservative. Based on yesterday's mark-to-market analysis, we estimate that spot EBITDA estimates at $987M for MARA and $601M for RIOT,” Pipes adds.

The analyst further argues that the unit economics remains “highly attractive.”

“Despite the rise in miner costs for the most efficient models, unit economics for digital mining

continues to be highly attractive with an estimated payback period of roughly nine months. Based on the specs of a Bitmain S19j Series, we estimate an unlevered pre-tax IRR of 119% and an NPV (5%) of $11,226 per miner. This analysis assumes our base case network hashrate and BTC price of $45,000. In addition, we also assume a cost of $4,500 per miner and an operating cost of $40/MWh,” he concludes.

Shares of RIOT and MARA are up 2.4% and 3.6%, respectively, in today’s trading session.

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