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Silvergate Capital (NYSE:SI) stock slid as much as 4.3% in Thursday premarket trading after Wells Fargo analyst Jared Shaw downgraded shares of the cryptocurrency bank to Underweight from Overweight on the basis of its “significantly limited” growth outlook.
The bearish price action comes even as major cryptos are on the rise, with bitcoin rising 0.9% to $20.2K and ethereum (ETH-USD) +2.7% to $1.36K at the time of writing.
The company’s Silvergate Exchange Network, the origin of its growth and profitability, is undergoing transaction volume reductions as crypto prices remain suppressed from huge drawdowns seen at the beginning of 2022, Shaw pointed out in a note to clients. Both bitcoin (BTC-USD) and ether (ETH-USD) are off over 70% from their November 2021 peaks.
“While SI is among the most asset-sensitive banks, balance sheet uncertainty from deposit outflows due to depressed crytpocurrency values more than offset the benefits from higher rates,” the analyst wrote.
As the uncertain crypto environment will likely keep Silvergate’s (SI) balance sheet trends volatile, Shaw has slashed his 2023 EPS estimate to $4.93 from $9.21 in the prior view. That compares with the consensus of $8.15.
The next two quarters “will be particularly challenging, as we believe greater clarity is needed on the broader economy ahead of a crypto recovery,” Shaw warned.
Shaw’s Underweight rating falls short of the Quant and average Wall Street analyst ratings of Strong Buy.
In mid-September, SA contributor Jason Appel viewed Silvergate stock as a Strong Buy on the prospect for a major technical bottom forming.
