After 34% Rally, BlackBaud Stock Has Limited Upside

by Trefis Team
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Comparing the trend in Blackbaud’s stock (NASDAQ: BLKB) over recent months with its trajectory during and after the Great Recession of 2008, we believe that the stock can potentially gain 10%, once fears surrounding the coronavirus outbreak are put to rest, and reach $72 from present levels of $66. The stock lost more than 60% in 2008 and gained around 135% after that. However, this time around, it dropped 37% between Feb 19th and March 23rd, before improving by 34% since then – a partial recovery. A detailed comparison of Blackbaud’s performance against the S&P 500 is available in our interactive dashboard analysis, 2007-08 vs. 2020 Crisis Comparison: How Did Blackbaud Stock Fare Compare With S&P 500?

The World Health Organization (WHO) declared a global health emergency at the end of January in light of the coronavirus spread. The rally in the equity market continued till February 19 with the S&P 500 reaching a record high, but the trend reversed sharply over the following weeks. BLKB stock lost 37% of its value (vs. about 34% decline in the S&P 500) between February 19 and March 23. A bulk of the decline came after March 6th, when an increasing number of Coronavirus cases outside China fueled concerns of a global economic slowdown. Notably, though, the multi-billion dollar stimulus package announced by the U.S. government has helped the stock price recover 34% over recent weeks (vs. about 50% gain in the S&P 500) to its current level of $66.

Blackbaud’s Stock Fell Because The Situation On The Ground Has Changed

Blackbaud is a leading provider of cloud-based software solutions to non-profit organizations. It offers solutions for CRM, marketing campaigns, fundraising, finance and accounting, and analytics. The ongoing Covid-19 crisis has impacted several of the vertical markets in which the company serves, like organizations related to museums, performing arts centers and theaters have to cancel events or suspend operations. Further, K-12 private schools will likely postpone their purchase of Blackbaud cloud solutions due to economic uncertainty. Similarly, as the world is focused on the current crisis, non-profits catering to other causes will likely struggle to raise funds, indirectly impacting Blackbaud’s revenues. On the flip side, several non-profits catering to Covid-19 have seen a surge in virtual fundraising events powered by the company’s cloud-based solutions. Further, the company generates around 90% of its revenues from recurring revenue contracts. 

While Q2 results saw a slight increase in revenues, we believe Blackbaud’s Q3 results will confirm this reality with a slight drop in both recurring and one-time services revenues. If signs of coronavirus containment aren’t clear by the October Q3 earnings timeframe, it is likely Blackbaud’s stock along with the broader market is going to see another round of sell-offs when results confirm palpable reality.

But Blackbaud Stock Witnessed Something Similar During The 2008 Downturn

We see BLKB stock declined from levels of around $23 in October 2007 (the pre-crisis peak) to roughly $9 in March 2009 (as the markets bottomed out) – implying that the stock lost as much as 61% of its value from its approximate pre-crisis peak. This marked a sharper drop than the broader S&P, which fell by about 51%.

However, BLKB recovered strongly post the 2008 crisis to about $21 in early 2010 – rising by 135% between March 2009 and January 2010. In comparison, the S&P bounced back by about 48% over the same period. 

Will Blackbaud’s Stock Recover Similarly From The Current Crisis?

Keeping in mind the fact that BLKB stock fell 37% from the market peak on February 19 to the low on March 23 compared to the 61% decline during the 2008 recession, we believe it can potentially recover by (10%) to levels of $72 once economic conditions begin to show signs of improving. This marks a partial recovery to the $78 level BLKB stock was at before the coronavirus outbreak gained global momentum. 

That said, the actual recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard forecasting U.S. Covid-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus.

Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture and complements our analyses of the coronavirus outbreak’s impact on a diverse set of Blackbaud’s multinational peers. The complete set of coronavirus impact and timing analyses is available here.

Want out-performance? Try guessing the % returns for our Pershing-inspired portfolio – based on billionaire Bill Ackman’s firm Pershing Square – vs. the S&P over the last 1 week, 1 month, 3 months, YTD or even 3 years. Our portfolio combines high growth, quality, and risk mitigation criteria in an interesting way.

 

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