We believe there may be a potential upside for Nielsen’s stock (NYSE: NLSN) after it has climbed 14% off the March bottom. Nielsen, a global data analytics company, saw its stock move from $12 to $14 compared to the S&P which moved 56% in the same period. The primary reason for the move was the Fed’s multi-billion dollar stimulus package announced on March 23rd which lifted market sentiments. The stock saw a further recovery post Q2 2020 results as the revenue and earnings beat market estimates.
The company has seen a slight fall in revenue over recent years, while its P/S multiple has dropped. We believe the stock is likely to see a moderate upside. Our dashboard What Factors Drove -58% Change in Nielsen Stock between 2017 and now? has the underlying numbers.
Nielsen’s revenues have remained largely flat from 2017 to 2019, which, in turn, led to a -1% fall in revenue per share (RPS) during this period as the number of shares outstanding were nearly flat. Further, its Net Income has fallen from $429 million in 2017 to $-415 million in 2019 primarily due to $1 billion in impairment charges in 2019.
Nielsen’s P/S multiple fell from 1.8x in 2017 to 1.1x in 2019. While the company’s P/S is now 0.7x there is a potential upside when the current P/S is compared to levels seen in the past years. P/S of 1.1x end of 2019 and 1.2x as recent as late 2018.
Effect of Coronavirus
The global spread of coronavirus has led to lockdown in various cities across the globe, which has affected industrial and economic activity. Due to the stay-at-home orders there is reduced discretionary spending which has adversely affected consumption as consumers focus on essentials. In addition, there have likely been supply disruptions in China and elsewhere from the global Coronavirus crisis. Despite this the company beat consensus for revenue by posting $1.5 billion for Q2 2020.
The actual recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard Trends In U.S. Covid-19 Cases provides an overview of how the pandemic has been spreading in the U.S. and contrasts with trends in Brazil and Russia. Following the Fed stimulus — which set a floor on fear — the market has been willing to “look through” the current weak period and take a longer-term view. With investors focusing their attention on 2021 results, the valuations become important in finding value. Though market sentiment can be fickle, and evidence of an uptick in new cases could spook investors once again.
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