Crypto currencies generate a pile of hype and headlines, for reasons both good and bad – but recently, the reasons have been good. Since the beginning of last year, the flagship crypto, Bitcoin, is up more than 300%, the gains fueled by the approvals of BTC spot ETFs, and the April 19 ‘halving’ event, when the reward for each solved blockchain link was cut in half, to 3.125 Bitcoins.
This latter event happens approximately every four years, and guarantees the crypto’s most valuable trait, its scarcity. Historically, the halving event has served as a catalyst for a Bitcoin bull market.
This spotlight on Bitcoin naturally extends to Bitcoin-related stocks, specifically Bitcoin miners, with Cantor Fitzgerald analyst Brett Knoblauch drawing attention to their potential for growth.
“We remain optimistic about the bitcoin mining sector,” Knoblauch said. “Bitcoin prices have remained elevated, and at current Bitcoin levels and global network hash rate (~600 EH/S), every publicly traded Bitcoin miner can mine Bitcoin profitably. Bitcoin miners remain an attractive and leveraged way to play Bitcoin, as they can effectively mine Bitcoin at a discount to what one would acquire Bitcoin for at spot prices.”
Knoblauch goes on to lay out a specific case for investors: “We favor miners that are low-cost, have scale, and have liquidity. Miners that can mine Bitcoin cheaper generate higher gross margins, which results in greater ability to acquire additional rigs to add additional scale.”
We’ve used the TipRanks platform to pull up the details on two of his picks – turns out both rated Strong Buys by the analyst consensus, too. Let’s see why they are drawing plaudits across the board.
Riot Platforms (RIOT)
The first Cantor pick we’ll look at is Riot Platforms, a Texas-based Bitcoin miner with two data center mining operations online in its home state. The chief of these facilities is Rockdale, which the company boasts is the largest Bitcoin mining facility working in North America based on power capacity. The Rockdale mining data center has a power capacity of 700 megawatts.
The Rockdale facility is complemented by the Corsicana facility. This Bitcoin mining data center is still under construction and development, but the first building in the complex, Building A1, is nearing complete deployment of its miner rigs – and has come online. This building has a power rating of 100 megawatts, just a fraction of the planned 1 gigawatt total capacity of the Corsicana complex. As of the end of May, Riot reported that its self-mining capacity, including the new capacity brought online at Corsicana, had reached 14.7 EH/s. The company expects to reach a total capacity of 20.1 EH/s later this year.
At the beginning of this month, Riot reported its Bitcoin production numbers for the month of May. These figures showed a significant reduction in the number of Bitcoin mined for the month, by 68% year-over-year, to 215. At the same time, the company did not need to sell any Bitcoin during May, and finished the month with 9,084 Bitcoin on hand. In addition, the company’s power strategy generated $7.3 million in power and demand response credits during the month, which is applied to mining activities and reduces the company’s cost to mine.
These news events followed Riot’s 1Q24 release, which showed that the company generated $79.3 million in revenue during the first quarter of this year. That was something of a mixed result, up more than 8% year-over-year, but missing the forecast by over $16 million. At the bottom line, Riot reported an EPS of 82 cents per share. This EPS was likely not comparable to the expected figure, a loss of 21 cents per share. Management reported that the first-quarter income included several one-time charges, including a $234.1 million change in the fair value of Bitcoin, a $32 million non-cash stock-based compensation expense, and a $32.3 million depreciation and amortization.
After all of that, Cantor analyst Knoblauch bases his optimistic outlook here on the company’s positive, but intangible attributes: its growth/valuation, cost-to-mine, and risk/reward. The analyst writes, “RIOT offers the best combination of growth/valuation… RIOT has one of the lowest cost-to-mine, has meaningful scale, and has the best balance sheet across the sector. It is poised to deliver meaningful organic capacity growth over the coming 18 months… RIOT screens very attractively from a valuation standpoint, with the market valuing it at $48m per 1 EH/S based on our FY24E hash rate estimate…”
Along with this upbeat stance, Knoblauch gives RIOT shares an Overweight (i.e. Buy) rating, with a $23 price target that points toward a robust one-year upside potential of 116%. (To watch Knoblauch’s track record, click here)
This view is in line with the general Street consensus here. The 9 recent analyst reviews of RIOT, all positive, give a unanimous Strong Buy rating, while the $18.22 average price target implies a one-year gain of 71% from the current share price of $10.64. (See Riot stock forecast)
CleanSpark (CLSK)
The second stock on our list is CleanSpark, a company that is combining Bitcoin mining with the use of low-carbon renewable energy – and showing that it’s possible to succeed at both while turning a profit. The company’s Bitcoin mining data center facilities are located in Mississippi, Georgia, and New York state, and are supported by renewable energy investments. CleanSpark is a large purchaser of high-quality renewable energy credits, and backs projects that connect low-carbon power generation to the grid.
CleanSpark owns and operates a total of 9 Bitcoin mining facilities, with 134,464 mining rigs deployed as of May 31, this year. These maintain a hash rate of 17.97 EH/s, and the company boasts that it maintains an energy efficiency of 23.05 J/TH. The company held, at the end of May, 6,154 Bitcoin among its assets. In addition, the company reported mining 417 Bitcoin in the month, for a total of 3,169 in this calendar year.
Early in May, CleanSpark made a move that promises significantly to expand its mining capacity. The company entered an agreement to purchase two Bitcoin mining locations in the state of Wyoming, and to break ground on the facilities shortly after the purchase closes. CleanSpark agreed to pay $18.75 million for the sites, and expects that the completed facilities will add 4 EH/s to the company’s total production rate.
For the last full quarter reported, fiscal 2Q24 which ended on March 31, CleanSpark reported total revenues of $111.8 million, for an impressive year-over-year growth rate of 163%. The top line beat the forecast by $2.33 million. CleanSpark’s bottom line, given as a GAAP EPS figure of 58 cents per share, was a strong turnaround from the prior-year 2Q loss of 23 cents per share.
This company’s growth caught the eye of analyst Knoblauch, who sees plenty of other strengths in the company. The Cantor analyst writes, “We believe CLSK offers the best growth story… CLSK’s biggest differentiator at present is its combination of scale, liquidity, and fleet efficiency. It has the most-efficient mining fleet at [approximately] 24.2 J/TH, which results in CLSK having the second-cheapest all-in cost to mine a Bitcoin. Combining that with accelerated rig deployments, we believe CLSK will have the largest hash rate by the end of 2024E, with our estimates for it to have ~48 EH/S. With CLSK having the third-best liquidity position, we are confident in its ability to meet our assumptions.”
For Knoblauch, all of this leads to an Overweight (i.e. Buy) rating on the stock. He complements that with a price target of $27, suggesting a 12-month gain of 56.5%.
Overall, CleanSpark’s shares have earned a Strong Buy consensus rating from the Street based on 4 reviews that break down 3 to 1 favoring Buy over Hold. The stock is currently selling for $17.25 and its $22.13 average price target implies a potential upside of 28% for the year ahead. (See CleanSpark stock forecast)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.