Is It A Good Time To Buy Moderna Stock?

Moderna (NASDAQ:MRNA) rocketed to prominence at the height of the COVID-19 pandemic as an early developer of a vaccine against the coronavirus.

 

Since then, the stock has taken a beating in the market, losing more than half its value from the record heights it reached in 2021.

 

This begs the question is it a good time to buy Moderna stock now and what investors should expect from the company going forward.

In Q3, Moderna reported revenues of $3.4 billion, down from $5.0 billion during the same period in 2021.

 

The company’s cost of sales skyrocketed by 20 percent, reaching a total of 35 percent. Earnings were also weaker than expected at $2.53 per share. The analyst consensus estimate, meanwhile, anticipated earnings of $3.04 per share.

 

In Q3, Moderna continued to invest heavily into research and development. Spending in this area increased 57 percent over the previous year, much of which was due to the costs of clinical trials. This spending, however, is critical for Moderna’s future growth.

 

Net income was arguably the biggest red flag in the Q3 report. Total net income dropped to $1 billion, 69 percent lower than the same period in 2021. While this is unsurprising as COVID-19 becomes less of a pressing threat, this decrease in net income represents a major problem for investors who bought at the stock’s high water mark.

 

After selling off by about 25 percent this year, Moderna appears at first glance to be a strong contender in terms of value. The stock trades at less than 10 times forward earnings and less than 4 times sales.

 

The company’s minuscule debt-to-equity ratio of 0.05 also contributes to its value argument. Thanks to these factors, Moderna is rated as an A for value by Zacks.

 

The difficulty in judging Moderna’s value, however, comes in the form of its lower projected earnings. Forward earnings are expected to be nearly 80 percent lower than the trailing 12-month performance.

 

If earnings continue to slide beyond 2023, even the relatively attractive price Moderna currently trades at could become much less appealing.

 

In looking at whether Moderna is still a good buy, it can be helpful to analyze institutional positions on the stock.

 

Over the last 12 months, the volume of institutional buying has been more than double that of selling. The total number of buyers also outnumbered sellers at 737 compared to 495. At the time of this writing, approximately 61 percent of Moderna was owned by institutional investors.

 

It’s also worth noting that Moderna has attracted at least one extremely prominent investment giant in recent months. Stanley Druckenmiller, the investment legend at the head of Duquesne Capital, bought 208,000 of Moderna in Q2.

 

While Druckenmiller sold 186,000 of those shares for a quick profit in Q3, his fund still holds over 22,000 shares of Moderna.

 

Given Druckenmiller’s record of successfully picking outperforming companies, it seems unlikely that he would continue holding stock in a company he didn’t believe to be a solid value.

 

For the foreseeable future, Moderna’s biggest business line will consist of ongoing COVID-19 vaccine deliveries. On December 15th, the Biden administration announced its COVID-19 winter preparedness plan for 2022-2023.

 

The plan included the continuation of free vaccines and boosters, of which many will presumably be manufactured by Moderna. With many other countries continuing similar policies, Moderna will likely see sustained sales of its COVID-19 vaccines for the foreseeable future.

 

Beyond continued delivery of its COVID-19 vaccines, Moderna is also developing vaccines for a variety of other diseases. These include influenza, zika, RSV and HIV.

 

The company is also working on an anti-cancer vaccine based on its mRNA technology. While all of these projects are still in various stages of testing, Moderna’s development pipeline includes several new products that could be potentially lucrative once they are commercialized.

 

Although Moderna has a promising pipeline and an ongoing source of revenue from COVID-19 vaccines, its sales are expected to slump going forward.

 

In 2023, the company projects sales of $4.5-5.5 billion from its existing contracts. Analysts, however, had estimated sales of $9.5 billion. This slower-than-expected sales rate is a natural result of COVID-19 nearing endemic status.

 

While Moderna still has a great deal to recommend it, investors cannot expect the meteoric success the company saw during the pandemic to continue.

 

Long-term growth is also a serious concern as a result of slower sales. Analysts currently expect Moderna to contract at a rate of nearly 50 percent annually over the next five years.

 

While one of Moderna’s other products could turn this projection around by gaining FDA approval, investors should expect revenue and earnings to contract unless this occurs.

 

A final risk factor is the possibility that Moderna is investing too heavily in share repurchases. The company has spent $2.9 billion in 2022 buying back its own shares.

 

While this is a decent way for Moderna to deploy some of its excess cash and reward investors during a troubling period, the repurchasing program could strip cash from other, potentially higher-yielding investments. With earnings slowing and a period of contraction likely ahead, Moderna’s repurchases may be ill-timed.

 

As you can see, Moderna stock offers a complex combination of advantages and disadvantages. Moderna was among the first companies to develop a successful COVID-19 vaccine, and its mRNA technology shows considerable promise for preventing other diseases. At the same time, however, the company’s projected negative growth rate makes it a risky proposition for investors.

 

Despite decent value metrics and a strong backing from institutional investors, Moderna likely cannot continue to miss earnings and sales estimates without its stock slipping further.

 

Ultimately, the question of Moderna’s future success comes down to whether the company can introduce new products from its development pipeline to boost sales and earnings. If the company fails to accomplish this, it would be difficult to justify today’s stock prices.

 

While very risk-tolerant investors may be comfortable opening a position in Moderna today, others may want to hold off and keep an eye on the stock. Even though Moderna could be a very good buy for its long-term growth prospects, the stock could have further to fall before additional products bolster its earnings enough to trigger a recovery.

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