Moderna stock heads to the moon

The Covid-19 vaccine maker’s shares are the top performer in the S&P 500 so far this year, but some analysts question the rally.

Compared to traditional vaccines, mRNA vaccines such as those made by Moderna and Pfizer-BioNTech are much faster and easier to make. Picture: AFP

Shares of Moderna Inc. have been on a tear lately, making the Covid-19 vaccine-maker the top performer in the S&P 500 this year.

Cambridge, Mass.-based Moderna’s stock price has surged 267% in 2021, handily trouncing all other companies in the benchmark index. Retailer Bath & Body Works Inc., recently rebranded from L Brands Inc., follows in a distant second, with a 120% year-to-date gain. Only two other companies in the S&P 500 – steel producer Nucor Corp. and cybersecurity stock Fortinet Inc. – have, based on Friday’s closing prices, seen their stock double this year.

The vaccine maker’s outperformance is the latest win for Moderna. The company, which before the pandemic had yet to commercialise a product, has reported roughly $US5.9 billion in Covid-19 vaccine sales in the first half of the year. It has already signed $US12 billion in advanced purchase agreements – with an additional $US8 billion in options – for its coronavirus vaccine next year. Meanwhile, the stock is being embraced by both professional and individual investors, who together drove the stock as high as $US497.49 intraday, an all-time-high, this month. It closed Friday at nearly $US383.

That combination has vaulted Moderna to a more than $US150 billion market capitalisation, down from its peak of roughly $US200 billion intraday earlier this month. Still, Moderna’s current market cap ranks it higher than pharmaceutical powerhouses Bristol-Myers Squibb Co. and GlaxoSmithKline PLC, as well as retail pharmacy chain CVS Health Corp.

Few analysts and investors predicted that Moderna, a company founded just over a decade ago, could have found success – or swelled to its current market cap – as quickly as it did. Even at the end of last year, after its Covid-19 vaccine received emergency use authorisation in the U.S., many questioned whether the stock would continue to rise after it already surged 434% in 2020.

But Moderna shares have kept on climbing, driven higher, in part, by the prospect of a permanent increase in demand for its products in the form of booster shots in the months – or possibly – years to come. The stock’s addition to the S&P 500 this summer also prompted purchases from funds that track the benchmark index.

Moderna’s stock price has surged 267% in 2021. Picture: AFP

Yet the rally has also been met with questions lately from Wall Street analysts, some of whom have raised doubts about whether the shares can continue to rise – especially in the short-term. Analysts at Oppenheimer & Co. and Piper Sandler Cos. recently downgraded the stock to give it neutral ratings, while analysts at Bank of America Global Research reiterated their underperform rating. (Some analysts have maintained buy ratings on the stock, FactSet shows.) “The problem that became very clear in my model was that they’ll grow in revenue next year and then have two to four years of declining sales and earnings,” said Hartaj Singh, senior biotech analyst at Oppenheimer, who downgraded the stock in early August after having a buy rating on it since it made its public debut in December 2018. “The basic issue is what I call the tension between fundamentals and the love for the technology and the platform.” Analysts and investors have been bullish on Moderna for much of the last year due to its success with its mRNA technology, which was also used in the vaccine produced by Pfizer Inc. and partner BioNTech SE. Compared to traditional vaccines, mRNA vaccines are much faster and easier to make – and advocates for it say the other possible applications for it are wide-ranging. Moderna on its own currently has roughly two dozen other products in its pipeline, including Zika and cancer vaccines.

Yet, analysts said, it’s difficult to determine how quickly many of its products will come to market. 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.

“Everyone believes that everything in the pipeline will be similar to Covid and that you can get it done in a few years,” he said. “I think Covid by far was a unique situation that they really crushed.” Moderna on Thursday traded at nearly 47 times its earnings over the last 12 months, according to Dow Jones Market Data, compared with nearly 21 times earnings for the S&P 500.

Analysts say there are other factors to consider when projecting future sales and earnings for Moderna, too. As other new Covid-19 vaccines come to market – including Novavax Inc., which said it hopes to seek U.S. emergency authorisation for its shot in the fourth quarter – companies such as Moderna may face pricing competition in the years to come.

How frequently and who will need a booster shot in the coming years also remains a question. The U.S. Food and Drug Administration earlier this month authorised giving a third dose of the Covid-19 vaccine from Pfizer or Moderna to certain immunocompromised people. The Biden administration recently called for a third shot to be administered to fully-vaccinated Americans ages 18 years or older who received either vaccine. Under the plan, the U.S. would start offering the extra shot – which will be administered eight months after the second dose – once the FDA authorises it. The agency is conducting an independent review, federal health officials have said.

Consensus estimates from Visible Alpha show that analysts expect revenues from Moderna’s Covid-19 vaccine to decline substantially starting in 2023 as more of the world becomes vaccinated and as demand for booster shots potentially wanes. Visible Alpha data show similar expectations for Pfizer, which splits Covid-19 vaccine gross profit evenly with BioNTech.

Pfizer’s stock has risen 32% year-to-date, compared with the S&P 500’s 18% gain. BioNTech’s U.S.-traded American depositary receipts are up 328% for the year.

The divergence in performance between companies such as Moderna and BioNTech versus Pfizer stems from the biotech companies having more to gain, analysts said.

“I think for Moderna and BioNtech … you had an explosion, a massive amount of revenue,” said Edward Tenthoff, senior biotech analyst at Piper Sandler. He, too, recently downgraded Moderna to neutral. He also expects Covid-19 vaccine revenue to drop-off for the company after 2022, but in the future, he expects to see growth again when other mRNA products are approved.

“I believe that Moderna will be a $US500 stock again,” Mr. Tenthoff said. “But it’s going to take more than just the [Covid-19] vaccine to achieve that.”

The Wall Street Journal