Moderna (NASDAQ:), one of the most-loved stocks this year, has lost some of its charm. Its shares are now under pressure as many analysts warn that the rally in the COVID vaccine producer has gone too far.
After hitting $493.76 in early August, its stock has lost more than 20% of its value in the past two weeks. The stock closed at $400.30 yesterday, valuing the Massachusetts-based company at almost $160 billion.
This valuation puts Moderna in the same league as global pharma giants like Bristol-Myers Squibb (NYSE:), GlaxoSmithKline (NYSE:), as well as retail pharmacy chain CVS Health (NYSE:).
One important consideration for investors at this point is: Should they buy Moderna now given the recent pullback?
The answer to that question very much depends on the path the global health crisis takes and the company’s success at moving beyond vaccines and unlocking the full potential of mRNA technology—on which its COVID vaccine is based—as a remedy for other diseases. For the time being, many analysts believe Moderna’s current rally has run its course.
Moderna tops the list of stocks that analysts project to fall the most this year, according to a CNBC.com analysis.
In a recent note an Oppenheimer analysts said:
“We continue to like the underlying mRNA story, technology and management execution. However, a burgeoning valuation has outstripped our current views of the breadth and depth of this promising story.”
More Breakthroughs
Beyond the COVID-19 pandemic, Moderna executives are optimistic their technology will bring cures for other respiratory-infectious diseases, like the respiratory syncytial virus (RSV); and cytomegalovirus (CMV); as well as other potential therapies for ailments, including cancers and inflammatory diseases.
Betting on other breakthroughs may not bring windfalls as quickly as those fuelled by the emergency authorization for the COVID vaccines. Most of Moderna’s experimental vaccines remain in early-stage human trials, except its shot for cytomegalovirus. That could turn into a multi-billion-dollar product if it works. Moderna also plans human trials this year for a vaccine against Epstein-Barr virus, which causes mononucleosis.
Moderna reported this month that exceeded Wall Street expectations, making about $6 billion in COVID-19 vaccine sales in the first half of the year. It has already signed $12 billion in advanced purchase agreements—with an additional $8 billion in options—for its coronavirus vaccine next year.
Oppenheimer and some analysts believe these sales projections have already reflected in the share price and it won’t make sense to bet on further gains. Geoff Meacham, managing director at BofA Securities, said in a recent note that Moderna would need a 100% probability of success for its entire pipeline to justify its rise.
Ia Wall Street Journal report Meacham said:
“Everyone believes that everything in the pipeline will be similar to COVID and that you can get it done in a few years. I think COVID by far was a unique situation that they really crushed.”
According to consensus estimates published on Investing.com, analysts are dividend on the future upside. Of 17 analysts polled, seven recommend to buy the stock, while an equal number of forecasters are neutral. The consensus 12-month price target shows another 27% slide from the stock’s current value.
Source: Investing.com
Moderna on Thursday traded at nearly 49 times its earnings over the last 12 months, compared with nearly 27 times earnings for the S&P 500.
Oppenheimer added in its note:
“We note that as mRNA’s pipeline progresses, particularly across other modalities, we could become constructive again. For the moment, we will watch the dream unfold from the sidelines.”
Bottom Line
The recent commentary by Wall Street analysts suggests that Moderna has already reached its peak valuation in the current cycle and the future gains are very much dependent on some unknowns, like the path the pandemic takes and the success of its other drugs.