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Novavax, Pfizer, and Moderna were at the top of the world during the Covid-19 pandemic.
The global demand for a new vaccine to save humanity and the economy from a disaster and collapse was the most important topic, and the companies that researched and developed the vaccines were the kings of wall street.
Where are those stocks now, and should we invest in them now that the hype has subsided and whether there are reasons to believe the companies can still benefits from their COVID vaccine and investments that other investors don't see yet?
Let's talk about that!
I'm Hoda Mehr, founder, and CEO of Stock Card, and on this blog and its accompanying YouTube channel and Podcast show, I share detailed fundamental analyses and interesting investment stories.
This post is part of a series I started a few weeks ago to fundamentally research companies to manage my real-money portfolio. I've already researched Canopy Growth (CGC), Fastly (FSLY), Snap (SNAP) , Shopify (SHOP), Airbnb (ABNB), Unity (U), JD.com (JD), NVIDIA (NVDA) and several others. I'll continue with this series for a few more weeks.
Remember, this content is for education and sharing ideas and not advice to buy or sell any securities.
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The rise and fall of vaccine stocks are one of the latest and most fascinating wall street stories.
All three stocks are now drastically lower than their all-time highs of the pandemic era, which means there may be an opportunity to buy them at a great price benefiting from the fact that the market is now up to the next big hype and has forgotten all about vaccine stocks.
Demand For Recurring Annual Covid Vaccine Shots
On the demand side, vaccine companies expect a new FDA recommendation will require the medical system to upgrade COVID vaccines with a new strain of the virus, and as a consequence, vaccine companies expect billions of dollars of vaccine revenue in the U.S.
Additionally, there is a high expectation to combine COVID and flu vaccines so the population can get immunized in one shot and the entire health ecosystem can be more efficient.
According to the President of Moderna at the Jeffries investment conference, there is demand for 50 to 100 billion vaccine shots. Compare that to 150M flu vaccine shots in the United States, and the 50 to 100 million doses are reasonably in demand.
This means there is an opportunity for additional revenue and potentially recurring revenue from future COVID vaccinations in the future.
Let's jump into the fundamentals and see which company is better positioned to benefit from the ongoing COVID vaccine demand.
Novavax (NVAX) Fundamental Analysis
The company's market cap is about $600M, on a minimum of $1.4B forecasted revenue and $700M in cash. Investors must expect the revenue to decline drastically to price the company at $600M in market cap, less than the cash it has on hand.
Looking at its latest quarterly earnings, Novavax made no money, or worst, it has reported a negative revenue. It makes no free cash flow and carries more than $2B in total liabilities. At first glance and looking at immediate data, the company is doomed. However, if you review the company's latest earnings reports, it is forecasting an annual revenue of between $1.4 to $1.6B coming from 2023 COVID vaccinations and the possibility of producing a combined influenza and Covid vaccine. It has already secured $800M in vaccine orders for 2023. The company is also reducing R&D and cutting costs to improve its financial stability. So the company isn't fully doomed.
However, I'm quite concerned about the large liabilities. Let's say Novavax uses $700M to pay ⅓ of its liabilities and uses all its revenue to pay for its operating expenses. It is still left with about $1.2B in liabilities. It needs to keep reducing its operating expenses so its revenue from future vaccines surpasses its costs and pays off the rest of its debt for several more years before it has any money left to return to investors. To add insult to injury, Novavax is dealing with a $700M dispute with GAVI, the Vaccine Alliance. The dispute is related to advanced payments by GAVI, and Novavax claims that the payment isn't refundable. The legal dispute is still ongoing. With all those challenges, it feels like the stock is overvalued even at a 0.4-time price-to-sales ratio.
Of course, we shouldn't forget about it its patent and technology value. So at best and in the absence of a major new outbreak, Novavax is a cigar-butt stock that may still have another last puff left in it.
Pfizer (PFE) Fundamental Analysis
Pfizer is a $220B company that makes $93B in revenue, is profitable, and holds more than $30B in cash and cash equivalent assets. It also pays more than a 4% stable dividend. This is a drastically different company compared to Novavax. It generates more than $26B in free cash flow too. It is a vaccine stock, but its survival isn't by any means dependent on Covid vaccine. So why is the company priced only eight times its earnings?
Going through its earnings report, the company wants to show its growth potential, excluding Covid-related products and expects between $20 to $25B in revenue by 2030 from its pipeline.
A company such as Pfizer has a rather stable and reliable trajectory based on its multi-decade operating history, and if you look at its historical Price-to-Earnings ratio trend, it is hovering at a historically low level, indicating possible upsides.
Moderna (MRNA) Fundamental Analysis
Moderna is a $47B company with $5B in expected revenue from the COVID vaccine program in 2023. It was profitable last quarter and has nearly $17B in cash and cash equivalent. Like Novavax, it is also working on the combined flu and Covid-19 vaccine, but unlike Novavax, it has several other products in the pipeline. Moderna is focused on bringing its mRNA technology to other vaccines, such as HIV, Lyme, or Norovirus, and therapeutics, such as different kinds of immuno-oncology and rare diseases among others.
On further review of the company's financials, you'll see that most of its net income last quarter came from income tax benefits driven by R&D credits. The company has drastically increased its R&D expenses. Although you do not like to see a drastic cost increase, an R&D expenditure increase for a biotech company that isn't plagued by significant liabilities, like Novavax, is good news. It is an indicator of potential future revenue.
At a 2.5 times price-to-sales ratio, with significant cash on the balance sheet and a solid pipeline to develop new mRNA-based vaccines and treatments, Novavax seems to be a typical high-risk - high-reward biotech bet. However, be mindful that the 2.5-time price to sales is based on last fiscal year's revenue of $15M thanks to the COVID-19 vaccine revenue. This year, so far, the company has only confirmed a $5B in revenue which brings the price-to-sales ratio up to more than nine times. Moderna can be a good bet if you can tolerate the risks. Investing in biotech always comes with the risk of delayed drug developments, significant market sensitivity to even the smallest news about the drug development programs, and the possibility of never getting an actual product out into the market.
Which Vaccine Stock Is A Good Buy Now?
Let's recap what we discusses so far and decide what to do with these old Vaccine Race winners:
In my point of view, Moderna has a chance for a significant return but comes with the typical risk that comes with biotech companies. Pfizer is most likely the most reliable investment of the three, but it won't be a big 10-bagger. And, lastly. Novavax be a big blind bet for a chance on a significant gain but also a very high likelihood of losing all your money.
I'll see you next time!
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