Moderna: Can It Sustain Its Incredible 2021 Growth Into The Future?
Moderna (MRNA) shares have been some of the most puzzling for investors to figure out throughout 2021. They’ve been incredibly volatile. Actually, that’s an understatement. As Kieth Speights, a Nobias 5-star analyst said in a recent article published by The Motley Fool last week, “Volatile doesn't begin to describe how Moderna's (NASDAQ:MRNA) shares have been in 2021. The stock has experienced six swings of 25% or more so far this year.”
And yet, even with all of these ups and downs, MRNA shares are up more than 46% year-to-date. Moderna’s shares have risen nearly 145% over the last year, meaning that longer-term investors who’ve been able to stomach the volatility have been rewarded for their patience. And yet, even after such a huge rally, MRNA shares are trading with a valuation that makes this one of the very cheapest stocks in the market, on a forward price-to-earnings and especially on a forward price-to-earnings growth basis.
Right now, Wall Street expects Moderna to post earnings-per-share of $27.20 during 2021. At today’s $152.68 share price, Moderna is trading with a forward price-to-earnings ratio of just 5.6x. This low figure implies expectations of a negative bottom-line growth rate moving forward. Consensus estimates for MRNA’s earnings-per-share growth during 2022 and 2023 sit at -39% and -61%, respectively.
In other words, the multi-billion question surrounding this stock right now (Moderna’s current market capitalization is $61.3 billion) is whether or not that company can sustain COVID-19 vaccine sales over the longer-term, and more importantly, can its mRNA vaccine platform be used against other illnesses. Adria Cimino, another Nobias 5-star analyst who writes for The Motley Fool, is bullish on the company, in large part due to her belief that the company can sustain its sales figures beyond 2021.
Cimino recently published an article, highlighting this bullish outlook, in which she notes, “Moderna's transformation from a clinical-stage biotech company to a commercial-stage one has been rapid -- and impressive. Only a year ago, Moderna didn't even have products on the market. And now, in its first full quarter of sales, the company's coronavirus vaccine generated $1.7 billion. And resulted in profitability -- $1.2 billion to be exact.” She touches upon the fact that this $1b+ profit figure has allowed the company to invest heavily in research and development. Moderna recently posted Q1 earnings and Cimino says that the company’s data shows that it spent roughly 4x more money on R&D during the first 3 months of 2021 than it did during the same period of time in 2020. And, MRNA management isn’t just making traditional investments related to healthcare, but instead, they’re investing heavily into “digital and artificial intelligence.” She notes that “CEO Stephane Bancel says the goal is to make AI "part of our DNA." In other words, the company hopes to stay ahead of its competition by leaping into the digital age with the aid of A.I., which has the potential to - very quickly - result in a wide defensive moat around this company.
Cimino also says that the company is investing heavily in its manufacturing capabilities. She says, “The company now is making investments to increase its capacity to 3 billion doses in 2022. This year, Moderna hopes to produce as many as 1 billion doses. And Moderna already increased the low end of its 2021 production forecast earlier this year. This progressive increase in capacity is positive. If Moderna hopes to continue winning big contracts -- such as this year's 300 million dose order from the U.S. -- it must have the capacity to handle those orders.” Finally, she concludes that it’s likely that COVID-19 vaccine demand will remain high for the foreseeable future, due to continued mutations and the likelihood that the world will require regular COVID-19 boosters, similarly to annual flu shots.
Cimino wrote, “The need for annual vaccination, the need for a booster, and the new age groups to vaccinate should prompt countries to order vaccine doses for 2022 -- and beyond. In fact, Bancel even said in the earnings call that he expects need next year to surpass that of this year.”
Speights has also published several reports highlighting Moderna’s potential bright future. In a recently article he published at The Motley Fool, titled “Why Moderna Could Triple Its COVID Vaccine Sales Next Year”, Speights said, “One key step toward achieving this goal is the expansion of the Moderna Technology Center (MTC) in Norwood, Massachusetts. Moderna plans to increase the production and lab space at the MTC from around 300,000 square feet to close to 650,000 square feet. This expansion will enable the company to increase production of its COVID-19 vaccine by 50% at the site.” He mentioned that the company has arrived at agreements with key suppliers to increase the production of COVID-19 vaccine materials, saying, “Lonza's facility in Switzerland will double its drug substance production for Moderna's vaccine. Rovi's facility in Spain will more than double its capacity related to the COVID-19 vaccine.”
Speights also notes that moving forward, Moderna will be able to increase production because it’s likely that booster shots, as well as vaccines for pediatric patients, will be “lower-dose” vaccines. Lastly, he arrived at the subject of mutations, variants, and the potential need for boosters, saying that the company has already done work on concerning COVID-19 variants popping up around the globe. He wrote, “Moderna CEO Stephane Bancel stated in the company's press release announcing its capacity expansion, "We are hearing from governments that there is no technology that provides the high efficacy of mRNA vaccines and the speed necessary to adapt to variants, while allowing reliable scalability of manufacturing.”’
This is a point that Guilia Bottaro, a Nobias 5-star analyst who writes for Proactive Investors, also made in her recent bullish article on MRNA. She said, “Moderna said that its tweaked jab was successful in neutralising the South African and Brazilian variants of the virus in laboratory trials. It means that boosters against the mutations could be effective in curbing the virus, with potential to be rolled out this year. The biotech said feedback from governments looking for jabs has been “overwhelming” and it has increased supply forecast to 800mln-1bn doses.”
But, it’s not just the COVID-19 success that has analysts excited about MRNA shares.
In his article, Speights said, “Moderna expects to advance its cytomegalovirus (CMV) vaccine candidate mRNA-1647 into a pivotal late-stage study this year. It also plans to begin phase 1 studies for several candidates, including experimental flu vaccines, Epstein-Barr virus vaccine mRNA-1189, and HIV vaccines mRNA-1644 and mRNA-1574.” Speights suggests that because of the COVID-19 vaccine success which has resulted in rapid growth for Moderna (Speights said that the company’s Q1 revenue figure of $1.9 billion towered above the $8 million revenue figure that MRNA posted during the first quarter a year ago) combined with the potential to revolutionize other disease vaccinations with its mRNA technology, one would have thought the company’s shares would have soared after the impressive Q1 results.
However, they did quite the opposite.
MRNA fell roughly 10% after its recent quarterly report. And this leads us into the bearish argument surrounding Moderna right now: intellectual property rights. Speights says that the company’s post-earnings sell-off wasn’t because of operational results, but instead, because “Investors are worried about the potential impact if governments waive intellectual property protections for COVID-19 vaccines. The Biden administration is in favor of this move, which could cause sales to be lower for Moderna and other vaccine makers.”
Nicholas Ward is a Senior Investment Analyst at Wide Moat Research. He has spent the last 8 years writing about the stock market at various publications, including Seeking Alpha, The Street, Forbes Real Estate Investor, Sure Dividend, The Dividend Kings, iREIT, Safe High Yield, and The Intelligent Dividend Investor.
Frankly, this is difficult territory for investors to tread. The protection of intellectual property rights is what has allowed capitalism in the United States to flourish throughout its history. However, in the midst of a global pandemic, with supply shortages popping up (especially in poorer countries) there is a growing chorus for governments to revoke those rights to ensure that the world’s population is offered protection from this disease.
Leaders from various countries have come out for and against such an action.
For example, a recent Bloomberg article quoted, German Chancellor, Angela Merkel, who, in response to the recent IP protection news, came out against the Biden administration’s proposal, saying, “The limiting factor for the production of vaccines are manufacturing capacities and high quality standards, not the patents. The protection of intellectual property is a source of innovation and this has to remain so in the future.”
At this point, it’s unclear whether or not politicians will be willing to open up what will likely turn into a much larger IP protection can of worms by setting a precedent with the COVID-19 vaccines. However, the fact remains, this represents a dark cloud above the heads of the companies who are making billions in profits off of vaccines/treatments right now and on Wall Street, uncertainty typically results in lower valuation premiums and therefore, share prices.
Right now, the majority of 4 and 5-star rated individuals that the Nobias algorithm tracks appear willing to overlook this potential headwind and remain bullish on MRNA shares. Today, there are 28 “Buy” ratings on the stock, compared to just 2 “Neutral” ratings and 11 “Sell” ratings.
Disclosure: Nicholas Ward has no positions in any stock mentioned in this article. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
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