Can CommVault Systems Gain 60% Post Covid-19?

Based on a comparison of CommVault Systems’ stock (NASDAQ: CVLT) trajectory over recent months with that around the 2008 recession we believe that the stock can potentially gain 60% once fears surrounding the coronavirus outbreak are abated to reach $60, from present levels of $37. A detailed comparison of CommVault Systems’ performance against the S&P 500 is available in our interactive dashboard analysis, 2007-08 vs. 2020 Crisis Comparison: How Did CommVault Systems Stock Fare Compared With S&P 500?

At the end of January the World Health Organization (WHO) declared a global health emergency 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. CVLT stock lost 32% 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 8% over recent weeks (vs. about 38% gain in the S&P 500) to its current level of $37.

CommVault Systems’ Stock Fell Because The Situation On The Ground Has Changed

CommVault Systems provides data protection and data management software to its clients, which can be used for data backup and recovery, cloud and infrastructure management, retention, and compliance. The company earns more than 90% of its revenues by selling its software products and providing customer support services – with customer support contributing around 59% of revenues share in 2019. As a result of the economic slowdown, businesses are not investing. Further, in order to conserve cash, they are trying to cut down expenditure and postpone spending. This is likely to make it hard for the company to acquire new customers and upsell products and services to the existing ones. Further, intensified competition from peers like Veeam, Cohesity, and Rubrik, could also pressure its bottom line. However, the company has managed to switch around 150 software and product customers to a subscription model from perpetual licenses, contributing around 40% of the segment revenues. With subscription licenses up for renewal in FY 2021, the company is expected to report revenue growth in the second half of FY 2021.

We believe CommVault Systems’ Q1 (FY Apr-Mar) results are likely to see a drop in both software & products and consumer support revenues. If signs of coronavirus containment aren’t clear by the July Q1 earnings timeframe, it’s likely CommVault Systems’ stock, along with the broader market, is going to see another round of sell-offs when results don’t come anywhere close to investor expectations.

But CommVault Systems Stock Witnessed Something Similar During The 2008 Downturn

We see CVLT stock declined from levels of around $19 in October 2007 (the pre-crisis peak) to roughly $11 in March 2009 (as the markets bottomed out) – implying that the stock lost as much as 42% of its value from its approximate pre-crisis peak. This marked a lower drop than the broader S&P, which fell by about 51%.

However, CVLT recovered strongly post the 2008 crisis to about $24 in early 2010 – rising by 117% between March 2009 and January 2010. In comparison, the S&P bounced back by about 48% over the same period. 

Will CommVault Systems’ Stock Recover Similarly From The Current Crisis?

Keeping in mind the fact that CVLT stock fell 32% from the market peak on February 19 to the low on March 23 compared to the 42% decline during the 2008 recession, we believe it can potentially recover by 60% to levels around $60 once economic conditions begin to show signs of improving. This marks a better than full recovery to the $51 level CVLT 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 CommVault Systems’ multinational peers. The complete set of coronavirus impact and timing analyses is available here.

While CommVault Systems’ stock presents a strong upside potential, which S&P 500 component stocks are likely to outperform the benchmark index? Our 5 In the S&P 500 That’ll Beat The Index: TWTR, ISRG, NFLX, NOW, V look promising.

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