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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.
Southern Copper Corporation, , saw its stock price fall by 33% over the last 11 trading sessions, (between March 9, and March 23), and by 37% since early February, underperforming the broader markets.
Drawing lessons from the 2008 financial crisis, we see SCCO stock declined from levels of around $25 in October 2007 (the pre-crisis peak) to levels of around $9 in March 2009 (as the markets bottomed out), implying SCCO stock lost as much as 65% from its approximate pre-crisis peak. This marked a sharper drop than the broader S&P, which fell by as much as 51%Copper mining companies' stocks generally move in tandem with the broader market trend and economic growth trends, as industrial demand for copper is likely to soften due to slower industrial activity in light of the current crisis. 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.
Southern Copper Corporation Performance During 2020 Coronavirus/Oil Price War CrisisSCCO stock declined by 33% between Friday March 9, 2020, and March 23, 2020, and the stock is down by 37% since February 1, after the WHO declared a global health emergency.
SCCO 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)
Southern Copper Corporation Stock Performance Over 2007-08 Financial Crisis
Southern Copper Corporation stock declined from levels of around $25 in October 2007 (the pre-crisis peak) to $9 in March 2009 (as the markets bottomed out) and recovered to levels of about $22 in early 2010.Through the crisis,
Southern Copper Corporation stock declined about 65% from its approximate pre-crisis peak. This marked a decline that was significantly more than the S&P, which fell by 51%.SCCO stock saw a strong recovery from its lows, rising by 145% between March 2009 and January 2010. The growth was much higher than the S&P, which rose by about 48% over the same period.
SCCO Stock: Key Values During 2007-08 Crisis
% Change for Key Dates: 2007-08 Crisis
SCCO Stock: Cumulative % Change from 10/1/2007
It will recover - however, a final check: Can Southern Copper Corporation 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 7.4x, 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
SCCO Cash from Investments (-ve is Cash Used)
SCCO Cash from operations
While Southern Copper Corporation'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 strongly and potentially outperform as the crisis winds down. Based on 2008 crisis comparison, SCCO stock could potentially see an upside of 90% post the current crisis
2008 vs. 2020 Crisis Comparison: How Did Freeport-McMoRan Stock Fare Compared with S&P 500?Forecasting US COVID-19 cases with cross-country comparisons-28% Coronavirus crash vs 4 Historic crashes Coronavirus impact and timing analyses