Circle’s Valuation Not Stretched, Says Citi, Starting Coverage With Buy Rating

Circle (CRCL) has the opportunity to be a prime facilitator of stablecoin adoption, Wall Street bank Citigroup said in a research report Monday assuming coverage of the stock.

Despite the stock’s outsized rally since going public, Circle’s valuation is not stretched, the report said. The stablecoin issuer priced at $31 a share in its initial public offering (IPO), and hit a record high of $299 last week before slipping back to $181 since.

The bank’s analysts initiated coverage of the shares with a buy/high risk rating and a $243 price target, or about 34% upside from last night’s close.

Stablecoins are cryptocurrencies whose value is tied to another asset, such as the U.S. dollar or gold. They play a major role in cryptocurrency markets and are also used to transfer money internationally.

Circle benefits from “scarcity value, a ‘winner takes most’ construct, a large addressable opportunity, legislative momentum” and “significant operating leverage potential,” the report said.

The company’s “key competitive strength is its neutrality,” analysts led by Peter Christiansen wrote, adding that “Circle’s defense against the risk of stablecoin fragmentation – being best of breed will be crucial.”

Due to the company’s weighty operating leverage and low capital intensity, the stablecoin issuer can achieve large excess returns given the potential addressable market, the report added.

Rival Wall Street bank JPMorgan is not as bullish, beginning coverage of Circle with an underweight rating yesterday, citing the stock’s valuation.