Up 80%, Credit Suisse shares have limited gain

We believe this Credit Suisse shares (NYSE: CS) has a limited upside potential of 14% in the short term. CS is currently trading at $ 12 and has lost 10% in value since the start of the year. It was trading at a pre-Covid high of $ 14 in February and is currently 12% below that level. In addition, CS stock is up 79% from the low of $ 7 seen in March 2020, after the multibillion dollar stimulus package announced by the U.S. government that helped the stock market recover widely. measure. Stock dominates broader markets (S&P 500 is up around 60%) as investors are positive about growth in Credit Suisse index

Investment Bank segment which includes both Investment Banking and Sales & Trading activities – the bank recorded a 5% year-on-year growth in its cumulative revenues for the first three quarters.

That said, CS’s third quarter results missed consensus estimates. It mainly suffered from a 10% drop in wealth management revenues, partially offset by an 11% increase in the investment banking segment. However, as the economy normalizes, the lower interest rate environment and negative GDP scenario would improve, which would benefit wealth management income. In addition, the bank is likely to relaunch its share buyback program from fiscal year 2021. After a significant rise in CS share since the end of March, we believe the share has limited upside potential in near future. Our conclusion is based on our detailed analysis of Credit Suisse’s stock market performance during the current crisis versus that during the 2008 recession in an interactive dashboard analysis.

Coronavirus crisis 2020

  • 12/12/2019: Coronavirus cases first reported in China
  • 01/31/2020: WHO declares global health emergency.
  • 02/19/2020: Signs of effective containment in China and big central banks’ hopes of monetary easing help S&P 500 reach record high
  • 03/23/2020: S&P 500 34% drop of the maximum level observed on February 19, as cases of Covid-19 accelerate outside China. Doesn’t help that oil prices collapse in mid-March amid Saudi-led price war
  • From 03/24/2020: S&P 500 recovers 60% from lows on March 23, as the Fed’s multibillion-dollar stimulus package removes short-term survival anxiety and injects liquidity into the system.

In contrast, here is how CS and the broader market fared during the 2007/2008 crisis.

Timeline of the 2007-08 crisis

  • 01/10/2007: Approximate pre-crisis peak of the S&P 500 index
  • 09/01/2008 – 10/01/2008: Accelerated decline in the market corresponding to Lehman’s bankruptcy filing (09/15/08)
  • 03/01/2009: Approximate low point of the S&P 500 index
  • 1/1/2010: Initial recovery to pre-accelerated decline levels (around 1/9/2008)

Credit Suisse Performance Against the S&P 500 During the 2007-08 Financial Crisis

CS stock fell from levels of around $ 64 in October 2007 (the pre-crisis peak) to around $ 23 in March 2009 (as markets bottomed out), implying that the stock has lost about 65% of its value from its approximate pre-crisis peak. . This marked a steeper decline than the broader S&P, which fell about 51%.

However, the CS recovered sharply from the 2008 crisis to around $ 47 in early 2010, increasing 104% between March 2009 and January 2010. In comparison, the S&P rebounded by around 48% over the same period. .

Credit Suisse fundamentals look strong in recent years

Credit Suisse revenues fell 7% from $ 24.7 billion in 2015 to $ 22.9 billion in 2019. However, the company’s net profit fell from – $ 3.1 billion to $ 3.5 billion in the same period, mainly due to a goodwill impairment charge of $ 3.9 billion in the fourth quarter of 2015. The company’s revenues in the third quarter of 2020 were 2 lower % to those of the previous year and his EPS fell from $ 0.34 to $ 0.20.


Phases of the Covid-19 crisis:

  • Beginning to mid-March 2020: Fear of the rapid spread of the coronavirus epidemic is reflected in reality, the number of cases accelerating in the world
  • From the end of March 2020: social distancing measures + confinements
  • April 2020: Fed stimulus suppresses short-term survival anxiety
  • May-June 2020: Resumption of demand, with the gradual lifting of confinements – no more panic despite a steady increase in the number of cases
  • July-November 2020: Weak Q2 and Q3 results, but continuing demand improvement and advances in vaccine development boost market sentiment

Keeping the 2009-10 trajectory in mind, this suggests a potential rally to around $ 14 (14% higher) once economic conditions begin to show signs of improvement. This marks a full recovery to the $ 14 level Credit Suisse stock was at before the coronavirus outbreak gained momentum globally.

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