Cantor Fitzgerald Reiterates Overweight Rating on Strategy (MSTR), PT $212, '

Cantor Fitzgerald analyst Ramsey El-Assal reiterated an Overweight rating and $212.00 price target on Strategy (NASDAQ: MSTR)

The analyst comments "The key takeaway: Today (6/29), Strategy moved assertively to bolster liquidity in an attempt to quiet investor concerns about the resiliency of the model. The company announced a Digital Credit Capital Framework that includes a fortified USD Reserve (~$2.55B, providing ~17.4 months of dividend/interest coverage), an increase in the STRC dividend rate to ~12%, separate ~$1B repurchase authorizations for both Digital Credit securities and MSTR common stock, and a ~$1.25B BTC monetization program to fund reserves or buybacks when advantageous. Just as important, we believe, is the decision-making framework released today that should improve investor visibility when it comes to future decisions about capital deployment. Given recent concerns around cash reserves, dilution, and insolvency, we believe today’s announcement is a step in the right direction.

USD Reserve policy formalizes liquidity requirements for preferred securities. MSTR bolstered its USD Reserve to ~$2.55B (as of 6/28), including unsettled ATM proceeds. According to the company, the reserve may only be used to pay preferred stock dividends and interest expense unless otherwise approved by the Board. In this context, based on current annual preferred dividends and interest expense of ~$1.76B, the reserve provides ~17.4 months of coverage. We note that the Board also adopted a policy requiring the company to maintain at least 12 months of expected dividend and interest coverage absent Board approval. Including the newly authorized BTC monetization capacity ($1.25B, see below), MSTR estimates total preferred dividend liquidity of ~$3.8B, equivalent to 25.9 months of coverage. We believe the USD reserve has been a key area of concern in recent weeks, and seeing it return to $2.5B+ should bode well with investors.

STRC dividend policy revised, increasing the annual dividend rate to 12%. Effective for semi-monthly periods with record dates beginning 7/1, the annual dividend rate on STRC will increase to 12%, with no impact on previously declared dividends. Going forward, management intends to evaluate the dividend rate monthly based on STRC trading levels, market yields, credit spreads, BTC price/volatility, USD Reserve coverage, capital market conditions, and the overall capital structure. The company reiterated its objective for STRC to trade in a range of ~$99-100 (i.e., around its $100 stated amount); however, dividend increases will not automatically occur if STRC trades below par.

Strategy authorizes separate $1B repurchase programs for both Digital Credit Securities and MSTR common stock. The Digital Credit authorization covers STRC, STRF, STRD, and STRK, with STRC expected to be the initial priority, while the common stock authorization applies to Class A shares. Repurchases under both programs may be executed through open-market purchases, privately negotiated transactions, block trades, tender or exchange offers (where applicable), and other permitted methods. Neither program has a fixed expiration date, obligates the company to repurchase securities, or may be funded from the USD Reserve. Given that many of the preferred shares are trading below par, we are not surprised to see management set the stage for opportunistic buybacks.

Opening the door to BTC sales. Within the framework, Strategy has also included a BTC Monetization Program, or authorization of sales of up to ~$1.25B in BTC to support its capital management objectives. Proceeds can be used to build or replenish the USD Reserve, fund preferred dividends and interest payments, or finance the newly authorized share and preferred stock repurchase programs. The program is flexible with no fixed timeline and can be modified or suspended at the Board’s discretion. While we view BTC sales as a less favorable option, this decision provides management with another way to raise capital, regardless of market conditions."

For an analyst ratings summary and ratings history on Strategy click here. For more ratings news on Strategy click here.

Shares of Strategy closed at $82.31 yesterday.

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