Benchmark sees over 500% upside in Strategy, reiterates $570 target on new capital framework

Quick Take

• Benchmark reiterated its Buy rating and $570 price target on Strategy, citing the companys new Digital Credit Capital Framework.

Benchmark Equity Research reiterated its Buy rating and $570 price target on Strategy after the company introduced a five-component capital framework that expands its ability to repurchase securities, monetize bitcoin holdings, and manage capital deployment during periods of market stress.

Strategy shares closed up 12.6% at $92.68 on Monday, according to The Block's MSTR price page. Benchmark's $570 target implies approximately 515% upside from that closing price.

Monday's gain followed Strategy's announcement of its new Digital Credit Capital Framework. The initiative includes a $2.55 billion reserve representing 17.4 months of dividend coverage, a $1 billion common stock repurchase program, a $1 billion preferred share buyback plan across its STRC, STRF, STRD and STRK issues, and board authorization to sell up to $1.25 billion in bitcoin from its 847,363 BTC treasury.

In a note to clients, Benchmark analyst Mark Palmer said the framework formally grants management permission to run Strategy's capital machine in “reverse” when market conditions demand it. That includes repurchasing common and perpetual preferred shares, monetizing bitcoin holdings to meet obligations, and pausing common issuance when the shares no longer trade at a premium to net asset value.

“The upshot is that Strategy is now an active manager of both sides of its capital structure, an approach that we view as a significant positive for its shareholders,” Palmer wrote in the note.

According to the analyst, the framework's five components each map to specific investor concerns, such as explicit parameters for capital utilization, an increase in preferred dividends, and structured buyback programs positioned as a response to the dilution critique.

“Taken together, the five pieces of Strategy's plan describe a company moving from one-way issuance to active two-way capital management, as it will now be able to issue securities when capital is attractive and repurchase them when its instruments trade at levels that make buybacks accretive,” the analyst said.

Benchmark said concerns that the company could aggressively liquidate bitcoin holdings overlook the scale of the authorization relative to Strategy's treasury. The company previously sold 32 bitcoin in May. Against its 847,363 BTC balance, the note characterized the $1.25 billion program as a “rounding error.”

Strategy unveiled the framework after its common shares declined about 30% over the prior week, while STRC, the company's variable-rate Stretch preferred security designed to trade near its $100 stated amount, fell below $80.