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The markets have seen a significant sell-off, with the S&P 500 declining by about 25% since March 9th, driven by the growing number of Coronavirus cases in countries outside of China, which is causing mounting concerns that the world could be headed into recession.
Altria Group, Inc. saw its stock price fall by 36% over the last 11 trading sessions, (between March 9, and March 23), and by 34% since early February, almost in line with the broader markets. Drawing lessons from the 2008 financial crisis, we see Altria's stock declined from levels of around $11.50 in October 2007 (the pre-crisis peak) to levels of around $9 in March 2009 (as the markets bottomed out), implying Altria's stock lost as much as 23% from its approximate pre-crisis peak. This marked a significantly lower drop than the broader S&P, which fell by as much as 51%
.Tobacco stocks are generally viewed as good defensive bets through such crises and there is a possibility that Altria's stock is oversold. However, demand could be partially offset by lower consumer spending power. 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 China.1/31/2020: WHO declares global health emergency.2/3/2020 to 3/23/2020: S&P 500 sees ~30% drop as Coronavirus cases accelerated outside China during March 2020. It also doesn't help that oil prices have crashed by close to 50% over the last month, amid Saudi-led price war.
Altria Group, Inc Performance During 2020 Coronavirus/Oil Price War CrisisMO stock declined by 26% between Friday March 9, 2020, and March 23, 2020, and the stock is down by 34% since February 1, after the WHO declared a global health emergency.
MO Stock: Key Values During 2020 Crisis
% Change for Key Dates: 2020 Crisis
S&P 500 Index Performance During 2020 Coronavirus/Oil Price War CrisisThe S&P 500 declined by 25% between March 9, 2020 and March 20, 2020 and it has fallen by 33% since February 1.
S&P 500 Index: Key Values During 2020 Crisis
% Change for Key Dates: 2020 Crisis
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)
Altria Group, Inc Stock Performance Over 2007-08 Financial Crisis
Altria Group, Inc stock declined from levels of around $11.50 in October 2007 (the pre-crisis peak) to $9 in March 2009 (as the markets bottomed out) and recovered to levels of about $12 in early 2010.Through the crisis,
Altria Group, Inc stock declined 23% from its approximate pre-crisis peak. This marked a decline that was significantly below the S&P, which fell by as much as 51%.MO stock saw a reasonable recovery from its lows, rising by 35% between March 2009 and January 2010. The growth was much lower than the S&P, which rose by about 48% over the same period.
MO Stock: Key Values During 2007-08 Crisis
% Change for Key Dates: 2007-08 Crisis
MO Stock: Cumulative % Change from 10/1/2007
It will recover - however, a final check: Can Altria Group, Inc in fact stay solvent through the Coronavirus crisis?
Are cash from operations going to cover for interest expense and investments needed?
As of December 2019, the company's interest coverage ratio stood at 8.1x, implying that the company is in a fairly comfortable position to tide over the coronavirus crisis without defaulting on its interest payment obligation in 2020. Also, the nearest debt maturity is only in 2031, which gives Altria a very large window to cover its debt obligations
MO Cash from Investments (-ve is Cash Used)
MO Cash from operations
While Altria'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, Altria's stock could potentially see an upside of 40% post the current crisis.
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