Will Cisco’s Stock Come Out Stronger After The Coronavirus?

by Trefis Team
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Comparing the trend in Cisco (NASDAQ: CSCO) stock 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 subside. Our conclusion is based on our detailed comparison of Cisco’s performance vis-à-vis the S&P 500 in our interactive dashboard analysis, 2007-08 vs. 2020 Crisis Comparison: How Did Cisco Stock Fare Compared 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. Between February 19th and April 15th, Cisco stock has lost around 10% of its value (vs. about 18% decline in the S&P 500). 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. Matters were only made worse by fears of a price war in the oil industry triggered by an increase in oil production by Saudi Arabia.

Cisco’s Stock Has Fallen Because The Situation On The Ground Has Changed

The decline in Cisco’s stock is understandable, considering the impact that the outbreak and a broader economic slowdown is likely to have on total industrial and economic activity. This is likely to adversely impact the company’s revenues as major companies are likely to delay expenses related to upgrading infrastructure and software. Notably, the company derives a bulk of its revenues from the US which has become the new epicenter of the outbreak- recording the largest numbers of COVID-19 cases across the globe. We believe Cisco’s results will confirm this reality with a drop in revenues across segments. If signs of coronavirus containment aren’t clear by the time of Q3 results (end of May), it’s likely Cisco’s stock, along with the broader market, is going to see a continued drop when results confirm palpable reality.

But Cisco Stock Witnessed Something Similar During The 2008 Downturn

  • We see Cisco stock declined from levels of around $25 in October 2007 (the pre-crisis peak) to levels of around $11 in March 2009 (as the markets bottomed out)- implying the company’s stock lost as much as 56% from its approximate pre-crisis peak. This marked a steeper drop than the broader S&P, which fell by about 51%.
  • However, Cisco recovered strongly post the 2008 crisis to about $18 in early 2010 – rising by 64% between March 2009 and January 2010. In comparison, the S&P bounced back by about 48% over the same period.

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

Keeping in mind the fact that Cisco stock has fallen by 10% this time around compared to the 56% decline during the 2008 recession, we expect it to recover by almost 10% to levels of $46 once economic conditions begin to show signs of improving. This marks a full recovery to the $46-level Cisco stock was 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 US 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 more complete macro picture and the complete set of coronavirus impact and timing analyses is available here.

See all Trefis Price Estimates and Download Trefis Data here

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