Tuesday, JPMorgan reiterated its Overweight rating on Riot Platforms (NASDAQ:RIOT) with a steady price target of $15.50. The firm's analysis followed Riot's acquisition proposal to Bitfarms, which was initially presented on April 22, 2024, and subsequently rejected by Bitfarms' Board. The offer, a 14% increase over Bitfarms' May 24th closing price, and a 20% premium over the April 19th price, values the company at approximately $950 million.
The proposed transaction terms suggest that Bitfarms shareholders would receive a mix of cash and Riot common stock, resulting in a 17% ownership of the merged entity. The acquisition would significantly scale Riot's operations, potentially matching the global leader, Marathon (NASDAQ:MARA), with up to 1.5 GW of power capacity and 52 EH/s of self-mining capacity by the end of the year. The expanded company would encompass 15 facilities across two continents.
Financially, the deal is viewed as advantageous for Riot, allowing the purchase of Bitfarms at a valuation discount on several metrics compared to Riot's own valuation and industry averages. Notably, the valuation per EH of installed mining capacity, per MW of installed power capacity, and per MW of contracted power capacity are all below group averages. Post-acquisition, Riot is expected to retain over $700 million in cash and $600 million in bitcoin to fund further expansion and hardware upgrades.
The analyst also noted that the acquisition proposal could serve as a benchmark for valuation of smaller publicly traded mining operators. These operators, defined as having between 4 EH/s and 8 EH/s of installed self-mining capacity, currently trade at an average of $100 million per EH of installed capacity. The market may look to Riot's offer as a potential indicator of value for similar companies within the sector.
InvestingPro Insights
As Riot Platforms (NASDAQ:RIOT) actively pursues expansion through strategic acquisitions, its financial health and market performance become increasingly relevant to investors. According to recent InvestingPro data, Riot boasts a market capitalization of $3.06 billion and a P/E ratio of 14.59, with an adjusted P/E ratio for the last twelve months as of Q1 2024 sitting at 21.91. This suggests that the company is trading at a reasonable valuation relative to its earnings. Additionally, Riot has experienced a revenue growth of 13.51% over the last twelve months, indicating a positive trajectory in sales.
InvestingPro Tips highlight that Riot holds more cash than debt on its balance sheet and analysts anticipate sales growth in the current year. These factors may reassure investors about the company's financial stability and outlook, especially in the context of its recent acquisition proposal to Bitfarms. However, it's also noted that Riot is quickly burning through cash, which could be a concern if the trend continues unchecked.
For those looking to delve deeper into Riot's performance and potential, InvestingPro offers additional tips, with 15 more available for review. By using the coupon code PRONEWS24, readers can receive an additional 10% off a yearly or biyearly Pro and Pro+ subscription, providing access to in-depth analysis and metrics that can help inform investment decisions in a dynamic market.
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