Wall Street analysts are betting that BitGo’s push into full-service institutional crypto financing will not only promote long-term growth, but also position the company as a prime acquisition target for traditional financial firms.
Compass Point analyst Ed Engel, who has a buy rating on the stock, wrote that the firm’s services could be attractive to traditional firms looking to offer crypto products to their clients.
“We … view BTGO as an ideal M&A target for Wall Street firms expanding into crypto. BitGo offers a full suite of services that could be integrated into traditional prime brokers, and new entrants could acquire BitGo to provide these solutions to clients,” the analyst wrote.
BitGo was one of the first digital asset companies to go public this year, providing custody and security services for digital assets, primarily to institutional clients. The IPO marked one of the first times that public equity investors could gain direct exposure to crypto infrastructure, making BitGo the bridge between traditional finance and digital assets as more financial firms push deeper into the digital asset space.
The infrastructure play is one of the points that Engel said could offer more upside, noting that investors are overly focused on their core custody business rather than BitGo’s “opportunity to cross-sell prime services.” The analyst went so far as to compare it to Galaxy’s (GLXY) and Coinbase’s (COIN) prime brokerage services, noting that Galaxy’s average earnings per share counterparty is “~6x BitGo’s, implying significant upside,” for BitGo if the firm is able to scale up its services.
‘Attractive’ takeover target
The company’s competitive advantage and acquisition potential were echoed by at least one other Wall Street investment bank analyst.
“We believe that BitGo’s competitive moat is solid, but more importantly, we believe that the company can represent an attractive time-to-market asset for large Tradfi players looking to enter this market in a rapid manner,” Canaccord Genuity said in a note. The analyst has a $15 price target and a buy rating on the stock.
BitGo’s acquisition potential is not without precedent.
In May 2021, Galaxy Digital said it agreed to buy the firm for $1.2 billion, but later abandoned the deal after Galaxy said BitGo had failed to provide financial statements by a late July deadline. Since the stock is public, these concerns may no longer be an issue.
BitGo’s stock has fallen more than 40% since the company set its IPO in January at $18 per share. stock, which is now trading near $10.26. Meanwhile, bitcoin is down about 24% year-to-date, Galaxy is down about 9% and Coinbase is down nearly 30% amid a broader selloff in the crypto market.
The IPO valued the company at $2 billion, but after the recent sale, the stock’s market value is currently around $1.24 billion, bringing it closer to the valuation near the failed Galaxy deal.
However, Canaccord sees BitGo’s underperformance as an overreaction from the market. “BTGO shares… have reacted much more severely than any short-term P&L weakness could warrant,” the investment bank’s analyst said, defending the stock.
BitGo currently has 10 analysts covering the stock, with nine buy ratings and one hold rating, according to FactSet data. Analysts’ price targets range from $12 to $18 per share. share, meaning the stock could still rise 17% to 75% from current prices.
Read more: Crypto M&A heats up as big banks and Fintechs race for scale
