Leading the charge towards development of a COVID-19 vaccine proved very profitable for unprofitable biotech Moderna (MRNA) this year. Despite a 10-year history of never earning money, Moderna stock soared nearly 500% at one point this summer, topping out just short of $95 a share, on hopes that its mRNA-1273 vaccine would be the solution that stops coronavirus in its tracks.
But enough is enough, says investment banker SVB Leerink.
SVB Leerink analyst Mani Foroohar cited a perfect storm of bad news in explanation for his decision to downgrade Moderna stock from "market perform" to "underperform" -- and to cut his price target on the shares by nearly 30%, to just $41 a share (28% downside). What is it that has Foroohar so upset with Moderna?
Actually, it's not Moderna itself that has the analyst doubting the stock's prospects, but what's been happening elsewhere in the field of coronavirus research that undermines the buy thesis on Moderna shares.
As the analyst explains, the devastation wrought by coronavirus this year has given rise to "a global Manhattan Project" to find a vaccine to prevent infection. Some 200 vaccines are said to be in various stages of development around the world, and among these, warns Faroohar, Moderna has lost its "lead in clinical development" of mRNA-1273. Worse, rival drugmakers' vaccines have been racking up large volume contracts for production that seem likely to ensure Moderna is far from the only game in town, once vaccines start being granted final approval.
At the same time, Farhoohar warns that end-user demand for vaccines may be weaker than previously hoped for. Patients, observes the analyst, are starting to voice concerns about injecting barely-proven products into their bloodstreams. And the more stories of vaccines rushed to market (see, Russia), or of vaccines reported to make people sick (we're looking at you, AstraZeneca) that circulate, the more recalcitrant consumers may become, and the smaller the market opportunity for Moderna -- especially in a field crowded with rivals hawking their own wonder-elixers as proof against coronavirus.
Now, none of the above is to say that Foroohar doubts Moderna's ability to bring its vaccine to completion, and receive FDA approval. To the contrary, Faroohar predicts that the Food and Drug Administration will grant Emergency Use Authorization (EUA) to mRNA-1273 in Q4 2020 -- just a quarter away from today. Rather, the analyst's worry is more than he cannot "confidently predict [earnings] beats [for Moderna] vs 2021 estimates even with aggressive assumptions."
So what does Faroohar predict for Moderna going forward? In 2020, the analyst forecasts the company will post $584.9 million in sales, and turn a positive profit in the fourth quarter -- but still end the year losing $0.83 per share. One year later, as vaccine production ramps up in 2021, he foresees sales rocketing to more than $2.3 billion, with GAAP earnings of $1.97 per share.
For the record, all of these predictions are well ahead of consensus estimates (which call for a $1.43 per share GAAP loss this year, and only a $1.75 per share profit next year). And perhaps that is what should frighten investors most: Based on these predictions, Foroohar is actually one of the analysts most positive on Moderna's prospects going forward, and even this analyst thinks you should sell the stock.
Yet, other analysts might have to disagree with Faroohar. The Street considers MRNA stock a Moderate Buy based on 11 Buy ratings, 2 Holds, and a single Sell. Meanwhile, the consensus price target stands at $90.75, showing a 59.5% upside from the current cost of a share. (See MRNA stock analysis on TipRanks)
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