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The markets have seen a significant sell-off, with the S&P 500 declining by about 18% 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.
AT&T saw its stock price fall by 24% over the last 12 trading sessions, (between March 9, and March 24), and by over 25% since early February, outperforming the broader markets.
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's 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%While lower economic growth and consumer spending could affect demand for the company's traditional data plans, the expected launch of HBO Max (AT&T's streaming platform) in May 2020 could see strong demand as home confinement of a large population is likely to lead to higher demand for streaming service and home entertainment options. 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.2/3/2020 to 3/24/2020: S&P 500 sees ~27% drop as Coronavirus cases accelerated outside China during March 2020. Doesn't help that oil prices crash in mid-March, amid Saudi-led price war
AT&T Performance During 2020 Coronavirus/Oil Price War Crisis
AT&T's stock declined by 24% between Friday March 9, 2020, and March 24, 2020, and the stock is down by over 25% since February 1, after the WHO declared a global health emergency.
T Stock: Key Values During 2020 Crisis
% Change for Key Dates: 2020 Crisis
S&P 500 Index Performance During 2020 Coronavirus/Oil Price War Crisis
The S&P 500 declined by 18% between March 9, 2020 and March 24, 2020 and it has fallen by 26.5% 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)
AT&T Stock Performance Over 2007-08 Financial Crisis
AT&T stock declined from levels of around $21 in October 2007 (the pre-crisis peak) to $13 in March 2009 (as the markets bottomed out) and recovered to levels of about $16 in early 2010.Through the crisis,
AT&T stock declined about 40% from its approximate pre-crisis peak. This marked a decline that was significantly below the S&P, which fell by as much as 51%.AT&T stock saw a reasonable recovery from its lows, rising by 24% between March 2009 and January 2010. The growth was much lower than the S&P, which rose by about 48% over the same period.
T Stock: Key Values During 2007-08 Crisis
% Change for Key Dates: 2007-08 Crisis
T Stock: Cumulative % Change from 10/1/2007
It will recover - however, a final check: Can AT&T 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 3.3x, which is quite low in such challenging environment, along with a fair leverage (Debt/EBITDA) ratio of 2.9x. However, the company has an undrawn credit facility of about $10 billion remaining, which is likely to help keep it solvent in the current circumstances.
T Total Debt
T Interest Expense
T Cash from Investments (-ve is Cash Used)
T Cash from operations
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.
AT&T2008 vs. 2020 Crisis Comparison: How Did Comcast Stock Fare During Coronavirus Crisis Compared to S&P 500?Forecasting US COVID-19 cases with cross-country comparisons-28% Coronavirus crash vs 4 Historic crashes Coronavirus impact and timing analyses