Is 30% Upside For IBM’s Stock Possible Post COVID-19 Crisis?

by Trefis Team
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Comparing the trend in IBM‘s (NYSE:IBM) stock over recent months with its trajectory during and after the Great Recession of 2008, we believe that the stock can potentially gain 30% once fears surrounding the coronavirus outbreak subside. Our conclusion is based on our detailed comparison of IBM’s performance vis-à-vis the S&P 500 in our interactive dashboard analysis, ‘2007-08 vs. 2020 Crisis Comparison: How Did IBM 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 January 31st and March 25th , IBM stock has lost 20.6% of its value (vs. about 21% 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.

IBM’s Stock Has Fallen Because The Situation On The Ground Has Changed:

IBM stock has suffered as states and countries are on lockdown. As industries have halted production and services, the demand for software, hardware, and web services have also taken a hit with consumers focusing solely on essentials and not discretionary products. We believe IBM’s Q1 and Q2 results will confirm this reality with drop in revenues across all the segments. That said, the company has been encouraging the vast majority of its US staff to work from home which should benefit the company’s portfolio of software and web services.  

 

But IBM Stock Witnessed Something Similar During The 2008 Downturn

We see IBM stock declined from levels of around $84.26 in October 2007 (the pre-crisis peak) to roughly $66.89 in March 2009 (as the markets bottomed out) – implying that the stock lost as much as 21% 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, IBM recovered strongly post the 2008 crisis to about $96.52 in early 2010 – rising by 44% between March 2009 and January 2010. In comparison, the S&P bounced back by about 48% over the same period.

 

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

Keeping in mind the fact that IBM stock has fallen by 20.6% this time around similar to the 21% decline during the 2008 recession, we see a potential rebound of 30% to levels of around $145 once economic conditions begin to show signs of improving. This marks a full recovery to the $142 level IBM 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 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 complements our analyses of Coronavirus impact on a diverse set of IBM’s multinational peers including MicrosoftAmazon and Salesforce.com. The complete set of coronavirus impact and timing analyses is available here.

 

 

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