SAP’s Stock To Regain Pre-Corona Level?

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We believe that SAP’s stock (NYSE:SAP) has limited upside potential once fears surrounding the coronavirus outbreak subside given its current price of around $128. Our conclusion is based on a detailed comparison of SAP’s performance against the S&P 500 now as well as during the 2008 downturn in our interactive dashboard analysis, 2007-08 vs. 2020 Crisis Comparison: How Did SAP’s 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. 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. SAP’s stock lost 31% 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 6, 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 28% over recent weeks (vs. about 35% gain in the S&P 500) to its current level of $128.

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

SAP’s stock has suffered as states and countries are on lockdown. As industries have halted production and services, the demand for software and web services have also taken a hit with consumers focusing solely on essentials and not discretionary products. We believe SAP’s Q2 results will confirm this reality with a drop in demand for products and services across its segments (Cloud, Software and Services), resulting in a drop in revenue growth. Our projections for SAP’s Revenues in 2020 and 2021 are available in a separate interactive dashboard.

 

But SAP’s Stock Fared Worse During The 2008 Downturn

We see SAP’s stock declined from levels of around $51 in October 2007 (the pre-crisis peak) to below $28 in March 2009 (as the markets bottomed out) – implying that the stock lost as much as 46% of its value from its approximate pre-crisis peak. This marked a lower drop than the broader S&P, which fell by about 51%.

Moreover, SAP recovered strongly post the 2008 crisis to about $41 in early 2010 – rising by 48% between March 2009 and January 2010. In comparison, the S&P also bounced back by about 48% over the same period. 

 

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

SAP’s stock fell 31% from the market peak on February 19 to the low on March 23 compared to the 46% decline during the 2008 recession. We believe it can potentially recover to levels of $138-140 or more once economic conditions begin to show signs of improvement. This marks a full recovery to the $139 level SAP’s 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 SAP’s multinational peers, including IBM and Salesforce. The complete set of coronavirus impact and timing analyses is available here.

 

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