Post COVID-19 Crisis, Could AT&T Underperform The Market With A Potential Upside Of 20%?

by Trefis Team
+14.80%
Upside
29.62
Market
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Trefis
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AT&T
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AT&T Inc.‘s (NYSE: T) stock declined by over 24% between 8th March 2020 and 24th March 2020 ( vs. an 18% decline in the S&P 500), and the stock is down 25% since January 31 after the WHO declared a global health emergency in light of the coronavirus spread (vs. about 27% decline in the S&P 500 since then).

Drawing lessons from the 2008 financial crisis, we see AT&T’s stock declined from levels of around $21 in October 2007 (the pre-crisis peak) to levels of around $13 in March 2009 (as the markets bottomed out), implying AT&T stock lost as much as 38% from its approximate pre-crisis peak. This marked a lower drop than the broader S&P, which fell by as much as 51%.

Will AT&T’s stock recover similarly from the coronavirus spread?

We compare the performance of AT&T vis-à-vis the S&P 500 in our interactive dashboard analysis, 2007-08 vs. 2020 Crisis Comparison: How Did AT&T Stock Fare Compared With S&P 500?

  • In fact, AT&T’s stock recovered at a modest rate post the 2008 crisis, to levels of about $16 in early 2010, rising by 24% between March 2009 and January 2010. In comparison, the S&P bounced back much stronger (2x AT&T’s stock price rise) by about 48% over the same period.
  • Overall, there have been two distinct trends driving the recent sell-off. Firstly, the increasing number of Coronavirus cases outside China is causing mounting concerns of a global economic slowdown. Secondly, crude oil prices plummeted by more than 20% after Saudi Arabia increased production.

Rationale Behind Stock Movement

  • While lower economic growth and consumer spending could affect demand for the company’s traditional data offerings, the expected launch of HBO Max (AT&T’s streaming platform) in May 2020 and people confining themselves to their home due to the spread of coronavirus, is likely to prove beneficial for the company.
  • More people sitting at home could amount to higher demand for streaming services and home entertainment options. This is likely to be partially offset by lower consumer spending power.
  • Thus, the decline in AT&T’s stock price is lower than the decline in the broader market.
  • Also, going by the trends seen during the 2008 economic slowdown, it’s likely that AT&T’s stock could bounce back strongly but potentially underperform the market as the crisis winds down, as the stock decline was not as great as that of the market in the first place.
  • We believe AT&T’s Q1 and Q2 results will confirm this reality with drop in revenues being lower than trends in most of the other industries.
  • However, if signs of coronavirus containment aren’t clear by the Q1 earnings timeframe, it’s likely AT&T’s stock along with the broader market is going to see further drops (though its drop will still be lower than the market).

Conclusion

While AT&T’s stock has declined due to the Coronavirus/Oil Price War crisis, going by trends seen during the 2008 slowdown, it’s likely that it could bounce back at a reasonable rate, but potentially underperform as the crisis winds down. Based on 2008 crisis comparison, AT&T’s stock could potentially see an upside of 20% post the current crisis.

What About Timing?

Potential for 20% gains in AT&T stock, and its timing, hinges 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 AT&T’s multinational peers – from competitor Comcast, and impact of coronavirus on Disney stock. The complete set of coronavirus impact and timing analyses is available here.

 

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