Can Marathon Digital Stock Rally On a Possible Acquisition?

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MARA stock - Can Marathon Digital Stock Rally On a Possible Acquisition?

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On April 4, the CEO of Marathon Digital (NASDAQ:MARA) indicated that the company is open to being acquired at the right valuation. The CEO also sees energy firms taking over the mining industry. This seems like a real possibility, considering a recent report that ExxonMobil (NYSE:XOM) is using excess natural gas to power crypto mining. With that in mind, can a possible acquisition create value for MARA stock investors?

I strongly believe that the stock deserves a premium valuation. However, Marathon Digital stock has been struggling in the recent past. The key factor is the rate at which the company is deploying miners.

For Q1 2022, Marathon reported a 14% increase in hash rate on a quarter-on-quarter basis. The company ended the quarter with a mining capacity of 3.9EH/s. Marathon has still provided guidance that it will increase the hash rate to 13.3EH/s by mid-2022. Furthermore, the company expects capacity to increase to 23.3EH/s by early next year.

This seems unrealistic considering the rate of miner deployment. Recently, B.Riley lowered the price target for MARA stock to $57. Analyst Lucas Pipes cited the reason of lower-than-expected Bitcoin (BTC-USD) production.

However, even if a lower capacity addition is considered, the price target implies more than 100% upside potential from current levels.

Given the fact that Marathon Digital expects to boost capacity to 23.3 EH/s, MARA stock seems significantly undervalued. At full capacity, the company will be generating 10% of the total computing power for the Bitcoin network.

To further elaborate, Marathon expects to produce 58 Bitcoin per day in the first quarter of 2023. Even at a $45,000 Bitcoin price, this would imply an annual revenue potential of $950 million. The market capitalization is just at 2.6x forward revenue potential. Furthermore, the scenario would be completely different if Bitcoin surges higher.

Overall, MARA stock looks attractive, even as the company struggles to significantly accelerate miner deployment. Even with potential delays, the company is positioned for a steady increase in the number of Bitcoin it mines. Marathon Digital seems like an attractive acquisition target and any possible deal will create meaningful value for investors.

On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.


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