Core Scientific (NASDAQ:CORZ), which warned investors earlier this week that it may seek relief through bankruptcy protection, has been downgraded to Neutral from Buy at B. Riley Friday as the bitcoin (BTC-USD) miner's balance sheet overhang restricts its overall financial flexibility and clouds growth prospects for 2023 and beyond.
"While Core has prioritized liquidity since the start of the crypto winter, we believe negative hosting margins (during 2Q) and compressed self-mining margins have exerted extra pressure on the company's ability to meet its financial obligations," said B. Riley analyst Lucas Pipes.
Pipes, though, pointed out that power prices, although still elevated, have dipped approximately 25% since the end of August, in a move that "does support Core to generate EBITDA while the company will likely sell any BTC mined immediately."
Moreover, if power prices continue to normalize and the price of bitcoin (BTC-USD) rebounds, Core's (CORZ) earnings potential in its self-mining and hosting units could see improvement, the analyst said.
Looking at its income statement, the miner has been losing money sequentially since Q1, and the balance sheet indicates it has $1.15B in debt as of Q2 vs. $255.9M in Q2 2021. Seeking Alpha's Profitability Grade for Core (CORZ) is an "F," with some of the worst marks in net income margin, return on common equity and levered free cash flow margin.
See SA contributor Mike Fay's assessment on Core Scientific's financial conundrum.