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SUMMARY
In March the stock markets saw their biggest sell off since the 1987 crash but things have improved in the last couple of weeks.There were two distinct trends driving the sell-off. Firstly, the increasing number of Coronavirus cases across the world is causing mounting concerns of a global economic slowdown. Secondly, crude oil prices plummeted by more than 20% after Saudi Arabia increased production.VMware (NYSE:VMW) stock recovered by 14% since March 8, 2020 and is down by a total of 17.7% since 19th February, considering the impact that the outbreak and a broader economic slowdown could have on technology industry.Moreover, VMW has a presence all over the globe including regions worst hit by the outbreak like China, Europe and US.However, going by the trends seen during the 2008 economic slowdown, it's likely that VMW would perform strongly and likely outperform S&P 500 as the crisis winds down.In this analysis, we take a look at how the company’s stock reacted to the economic crisis of 2008 and compare its performance with the S&P 500.
2020 Coronavirus/ Oil Price War Crisis
Timeline of 2020 Crisis So Far
12/12/2019: Coronavirus cases first reported in China1/31/2020: WHO declares 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 highSince 2/20/2020 : S&P 500 sees
18% drop as COVID-19 cases accelerate outside China. Doesn't help that oil prices crash in mid-March amid Saudi-led price war
VMware Inc Performance During 2020 Coronavirus/Oil Price War Crisis
VMW Stock: Key Values During 2020 Crisis
% Change for Key Dates: 2020 Crisis
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S&P 500 Index Performance During 2020 Coronavirus/Oil Price War Crisis
S&P 500 Index: Key Values During 2020 Crisis
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% Change for Key Dates: 2020 Crisis
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2007-08 Financial Crisis
Timeline of 2007-08 Crisis
10/1/2007: Approximate pre-crisis peak in S&P 500 index9/1/2008 - 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)3/1/2009: Approximate bottoming out of S&P 500 index1/1/2010: Initial recovery to levels before accelerated decline (around 9/1/2008)
VMware Inc Stock Performance Over 2007-08 Financial Crisis
VMW's stock declined from levels of around $73.62 in October 2007 (the pre-crisis peak) to levels of around $17.25 in March 2009 (as the markets bottomed out) and recovered to levels of about $35.21 in early 2010.Through the crisis, VMW's stock declined by as much as 76.6% from its approximate pre-crisis peak. This marked a higher decline than the S&P which fell by as much as 51%.Further, the stock recovered strongly, rising by 104.1% between March 2009 and January 2010. In comparison, the S&P rose by about 48% over the same period.
VMW Stock: Key Values During 2007-08 Crisis
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% Change for Key Dates: 2007-08 Crisis
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VMW Stock: Cumulative % Change from 10/1/2007
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S&P 500 Performance Over The 2007-08 Financial Crisis
The S&P declined from levels of around 1540 in October 2007 to levels of around 760 in March 2009, and recovered to levels of 1120 by January 2010.Through the crisis, the S&P declined by as much as 51% from its approximate pre-crisis peak
S&P 500 Index: Key Values During 2007-08 Crisis
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% Change for Key Dates: 2007-08 Crisis
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S&P 500 Index: Cumulative % Change from 10/1/2007
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Survival Check
It will recover - however, a final check: Can VMware Inc in fact stay solvent through the Coronavirus crisis?
Are cash from operations going to cover for interest expense and investments needed?
VMW Interest Expense
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VMW Cash from Investments (-ve is Cash Used)
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VMW Cash from operations
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Conclusion
While VMW's stock has declined due to the Coronavirus/Oil Price War crisis, going by trends seen during the 2008 slowdown, it is likely that it could potentially have an upside of more than 15% as the crisis winds down.
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