Will Trimble Stock Rebound To Its Pre-Inflation Shock Highs of $95?

TRMB: Trimble Navigation logo
TRMB
Trimble Navigation

Trimble stock (NASDAQ: TRMB), a company that specializes in software for navigation, guidance, and control of equipment for various industries, including construction and agriculture, trades at $52 per share, about 36% below the level seen in March 2021. TRMB stock was trading at around $58 in early June 2022, just before the Fed started increasing rates, and is now 11% below that level, compared to 25% gains for the S&P 500 during this period. TRMB stock has been weighed down in the recent past due to raw material cost inflation and falling demand for its COVID-related products.

Looking at a slightly longer term, TRMB stock has faced a notable decline of 25% from levels of $65 in early January 2021 to around $50 now, vs. an increase of about 25% for the S&P 500 over this roughly 3-year period. However, the decrease in TRMB stock has been far from consistent. Returns for the stock were 31% in 2021, -42% in 2022, and 2% in 2023 (YTD). In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 23% in 2023 (YTD) – indicating that TRMB underperformed the S&P in 2022 and 2023.

In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Information Technology sector, including AAPL, MSFT, and NVDA, and even for the megacap stars GOOG, TSLA, and AMZN. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index, less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

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Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could TRMB face a similar situation as it did in 2022 and 2023 and underperform the S&P over the next 12 months – or will it see a recovery?
Returning to the pre-inflation shock high of around $95 (seen in Aug 2021) means that TRMB stock will have to gain over 85% from here, and we don’t think that will materialize anytime soon. That said, TRMB stock currently trades at 3.2x trailing revenues, below its last four-year average of 4.4x, and appears to have some room for growth.

Our detailed analysis of Trimble’s upside post-inflation shock captures trends in the company’s stock during the turbulent market conditions seen over 2022. It compares these trends to the stock’s performance during the 2008 recession.

2022 Inflation Shock
Timeline of Inflation Shock So Far:

  • 2020 – early 2021: Increase in money supply to cushion the impact of lockdowns led to high demand for goods; producers unable to match up.
  • Early 2021: Shipping snarls and worker shortages from the coronavirus pandemic continue to hurt supply.
  • April 2021: Inflation rates cross 4% and increase rapidly.
  • Early 2022: Energy and food prices spike due to the Russian invasion of Ukraine. Fed begins its rate hike process.
  • June 2022: Inflation levels peak at 9% – the highest level in 40 years. The S&P 500 index declined more than 20% from peak levels.
  • July – September 2022: Fed hikes interest rates aggressively – resulting in an initial recovery in the S&P 500 followed by another sharp decline.
  • October 2022 – July 2023: Fed continues rate hike process; improving market sentiments helps S&P500 recoup some of its losses.
  • Since August 2023: Fed has kept interest rates unchanged to quell fears of a recession, and it is prepared for rate cuts in 2024.

In contrast, here’s how TRMB stock and the broader market performed during the 2007/2008 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)

Trimble and S&P 500 Performance During 2007-08 Crisis

TRMB stock declined from $20 in September 2007 (pre-crisis peak) to $7 in March 2009 (as the markets bottomed out), implying it lost 65% of its pre-crisis value. It recovered after the 2008 crisis to levels of around $13 in early 2010, rising nearly 80% between March 2009 and January 2010. The S&P 500 Index saw a decline of 51%, falling from levels of 1,540 in September 2007 to 757 in March 2009. It then rallied 48% between March 2009 and January 2010 to reach levels of 1,124.

Trimble’s Fundamentals Over Recent Years

Trimble’s revenue increased from $3.3 billion in 2019 to $3.7 billion in 2022 due to its recurring revenues, including subscriptions. However, the end-user demand has been tepid in the recent past, partly due to unfavorable macroeconomic factors. The company’s earnings stood at $1.81 on a per-share and reported basis in 2022, compared to the $2.05 figure in 2019.

Does Trimble Have A Sufficient Cash Cushion To Meet Its Obligations Through The Ongoing Inflation Shock?

Trimble’s total debt decreased from $2.0 billion in 2019 to $1.6 billion now, while its cash increased from $189 million to $271 million over the same period. The company also garnered $541 million in cash flows from operations in the last twelve months. Given its cash cushion, Trimble appears to be in a comfortable position to service its near-term obligations.

Conclusion

With the Fed’s efforts to tame runaway inflation rates helping market sentiment, we believe TRMB stock has the potential for more gains once fears of a potential recession are allayed. That said, unfavorable macroeconomic factors and softer end user demand for its software are potential risk factors for realizing these gains.

While TRMB stock can see higher levels, it is helpful to see how Trimble’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

Returns Dec 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 TRMB Return 13% 4% 74%
 S&P 500 Return 4% 24% 113%
 Trefis Reinforced Value Portfolio 8% 38% 609%

[1] Month-to-date and year-to-date as of 12/20/2023
[2] Cumulative total returns since the end of 2016

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