Is Steelcase Stock A Buy?

We believe that Steelcase stock (NYSE: SCS), a designer, marketer, and manufacturer of office furniture and complementary products and services, is a good buying opportunity at the present time. SCS stock trades near $14 currently and it is, in fact, down 26% from its pre-Covid high of around $19 in Feb 2020 – before the coronavirus pandemic hit the world. SCS stock has had a volatile ride since early 2020 as the Covid-19 work-from-home environment has not been kind to the company. Steelcase saw a dramatic drop in revenues and earnings in 2020 and they expect 2021 to be just marginally better. While the company’s stock rallied 47% from levels of around $9 on March 23, 2020, when broader markets made the bottom, to levels of around $14 currently – SCS stock saw subdued performance compared to the overall market. However, the company’s stock still seems attractive at the current price. It is already investing in education and healthcare as well as regional investments in the Asia-Pacific region – which is expected to drive the overall demand in the workspace product industry going forward.

The company’s expansion in the Asia-Pacific region has already led to an impressive boost in sales in the years before the Covid-19 slump (8% y-o-y in 2019) and it remains the fastest-growing region. Since only 10% of the company’s revenues come from this region, there is a lot of scope for further expansion. In addition, long-term investments in educational facilities are further expected to drive higher demand for workspace products as the current facilities are using funds to reinvent their spaces and new facilities are coming up in order to handle the increased demand for an educated workforce.

While SCS stock has been volatile in the current Covid-19 crisis, how did it fare in the 2008 crisis? In this note, we focus on a comparative analysis of Steelcase stock performance during the current financial crisis with that during the 2008 recession in our interactive dashboard.

Timeline of Covid-19 Crisis So Far:

• 12/12/2019: Coronavirus cases first reported in China
• 1/31/2020: WHO declares a global health emergency.
• 2/19/2020: Signs of effective containment in China and hopes of monetary easing by major central banks helps S&P 500 reach a record high
• 3/23/2020: S&P 500 drops 34% from the peak level seen on Feb 19, 2020, as COVID-19 cases accelerate outside China. Doesn’t help that oil prices crash in mid-March amid Saudi-led price war
• Since 3/24/2020: S&P 500 recovers 98% from the lows seen on Mar 23, 2020, as the Fed’s multi-billion dollar stimulus package suppresses near-term survival anxiety and infuses liquidity into the system.
• 7/7/2021: 47.5% of the U.S. population is fully vaccinated for Covid-19.

In contrast, here is how SCS stock and the broader market fared during the 2007-08 crisis

Timeline of 2007-08 Crisis

• 10/1/2007: Approximate pre-crisis peak in S&P 500 index
• 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
• 3/1/2009: Approximate bottoming out of S&P 500 index
• 12/31/2009: Initial recovery to levels before accelerated decline (around 9/1/2008)

Steelcase and S&P 500 Performance Over 2007-08 Financial Crisis

SCS stock declined from levels of about $19 in October 2007 (pre-crisis peak for the broader markets) to levels of around $11 in September 2008 and further fell to $4 in March 2009 (as the markets bottomed out), implying SCS stock declined 79% from its October 2007 levels. Furthermore, it rallied to levels of around $6 by the end of 2009, reflecting a 58% growth from its bottom. In comparison, the S&P 500 Index saw a decline of 51% from its peak in September 2007 to its bottom in March 2009, followed by a sharp recovery of 48% by January 2010.

Steelcase Fundamentals Over The Recent Years

Steelcase’s revenues declined 13% to $2.7 billion over the last twelve months period, compared to $3.1 billion in 2018, primarily due to the impact of the Covid-19 pandemic on the overall sales. The company’s earnings per share contracted to 30 cents over the last twelve-month period, compared to 68 cents in 2018. This can be attributed to lower revenues and contraction of margins.

Does Steelcase Have Sufficient Cash Cushion To Meet Its Obligations?

Steelcase has seen its total debt grow to $484 million over the last twelve months period, compared to only $295 million in 2018, but its total cash increased 40% to $397 million from $283 million over the same period. It also generated around $95 million in cash from its operations over the last twelve-month period. The company has a sufficient liquidity cushion to meet its near-term obligations.

Conclusion

Phases of Covid-19 crisis:

• Early- to mid-March 2020: Fear of the coronavirus outbreak spreading rapidly translates into reality, with the number of cases accelerating globally
• Late-March 2020 onward: Social distancing measures + lockdowns
• April 2020: Fed stimulus suppresses near-term survival anxiety
• May-June 2020: Recovery of demand, with gradual lifting of lockdowns – no panic anymore despite a steady increase in the number of cases
• Since late 2020: Weak quarterly results, but continued improvement in demand and progress with vaccine development buoy market sentiment
• Since Q1 2021: Several countries have undertaken large-scale Covid-19 vaccination programs, with 47.5% of the U.S. population being fully vaccinated now.

Given the increased vaccination rate, we expect an improvement in demand to buoy market expectations. As investors focus their attention on expected 2021 results, we believe Steelcase stock has the potential for strong gains once fears surrounding the Covid outbreak are put to rest.

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market since 2016.

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