Capital wants to become a crypto bank, and Wall Street seems strongly supportive of its digital asset ambitions.
Currently, every analyst polled by FactSet has a buy rating on shares of Silvergate, whose plans include its own stablecoin and cryptocurrency payment platform.
On Monday, Bank of America analyst Brandon Berman joined the ranks of bullish analysts, initiating a hedge on Silvergate stock (ticker: SI) with a buy rating. Its price target of $200 implies gains of 34% from recent Silvergate prices around $148.
Silvergate “offers an alternative way for investors to gain exposure to the growth of the digital asset ecosystem, instead of owning an actual digital asset, such as Bitcoin,” Berman writes.
The bank is developing a cryptocurrency payment platform, called the Silvergate Exchange Network, aimed at acting as an intermediary for institutions to convert money into crypto, and vice versa, in real time.
Silvergate also aims to issue a stablecoin – a token designed to maintain a fixed price of $1 – based on assets it acquired from Diem, the failed stablecoin project backed by
‘ (FB) Facebook Pole.
Silvergate’s payment platform has more than doubled its customer base since its launch in 2018. Nearly 1,400 customers, including exchanges, family offices and crypto companies, are now on the network. And dollar volume on the network has grown steadily, reaching $790 billion last year in total.
Silvergate is also accumulating digital currency deposits, reaching $14 billion in 2021, up from $1.5 billion in 2018. And Silvergate plans to develop stablecoin services, including its own coin, assuming it can obtain regulatory approvals.
Berman sees the bank monetizing its stablecoin infrastructure in three ways: earning interest on reserve collateral for its stablecoins; charge transaction fees for international remittances or money transfers; and earn fees for issuing and redeeming stablecoins with the bank.
All of this should fuel earnings growth at a compound annual rate of 60% over the next three years, Berman estimates, nearly three times faster than other high-growth banks, including
(FRC), Signature Bank (SBNY) and Silicon Valley Bank (SVB).
He sees Silvergate earning $6.61 per share in 2023, ahead of consensus estimates of $5.72 per share. For 2024, he estimates an earnings share of $8.21, broadly in line with consensus forecasts.
Silvergate’s crypto transformation faces hurdles. The regulatory roadmap for banks to accept crypto deposits and provide other crypto services is unclear. And stablecoins are heading for more oversight with the White House and some members of Congress calling for a framework that would require coin issuers to be federally supervised and insured depository institutions, imposing capital quality requirements on stablecoin reserves and other measures to ensure stability.
Silvergate’s growth doesn’t come cheap either. The stock is trading at 48 times 2022 earnings and 26 times 2023 estimates, according to FactSet. Similar-sized banks, with assets of $10 billion to $30 billion, trade at 12 times forward earnings.
None of this seems to deter Wall Street. Analysts have an average price target of $190 on the stock, along with the general consensus that it deserves a Buy rating.
So far, it’s been a winning call; Silvergate stock jumped 99% last year, following a 367% gain in 2020. The stock is down 2% this year, slightly underperforming the
Write to Daren Fonda at [email protected]