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Elevator Pitch

I have a Hold investment rating for Moderna’s (NASDAQ:MRNA) shares, following its recent earnings announcement.

On one hand, MRNA’s recent Q1 2022 financial results beat market expectations. More importantly, Moderna has substantial cash on its books which could be converted into future revenue as long as it allocates capital to the most promising research projects and the most attractive acquisition targets.

On the other hand, Moderna’s revenue in the short-term is challenging to forecast, given that it is impossible to predict how the COVID-19 pandemic will evolve in the months ahead. This is evidenced by the volatility in MRNA’s top line in the next couple of years and the wide dispersion of sell-side price targets for the stock.

The above explain my Neutral view and Hold investment rating for Moderna.

Did Moderna Beat Earnings?

Moderna beat the Wall Street analysts’ consensus earnings per share or EPS estimate by a very wide margin in the first quarter of 2022.

According to MRNA’s Q1 2022 financial results press release issued on May 4, 2022 before trading hours, the company’s diluted EPS rose by +202% from $2.84 in the first quarter of 2021 to $8.58 in the most recent quarter. Moderna’s first-quarter bottom line came in +53% higher than the sell-side consensus EPS forecast, and this was also the sixth time in the past seven quarters that MRNA’s earnings exceeded market expectations.

Moderna’s shares initially went up by +6% from $146.54 as of May 3, 2022 to $155.05 as of May 4, 2022 after the company reported its most recent quarterly financial results, and this appeared to be aligned with its Q1 earnings beat highlighted above.

But the post-earnings share price outperformance for MRNA was not sustained, as Moderna’s stock price subsequently corrected by -12% to close at $135.80 at the end of the trading day on May 9, 2022 which was lower than where the stock traded prior to its first-quarter earnings release. In the subsequent section, I analyze MRNA’s other key metrics (apart from Q1 2022 earnings), which might provide some clues about the stock’s recent price correction.

MRNA Stock Key Metrics

There are two key metrics relating to Moderna that investors should focus their attention on.

The first key metric is MRNA’s revenue growth for Q1 2022.

As I touched on in the preceding section, Moderna’s bottom line expanded by +202% YoY in the first quarter of 2022. This strong earnings growth in the recent quarter was achieved despite a +71% YoY increase in total operating costs from $671 million in the first quarter of 2021 to $1,839 million in the first quarter of 2022. In other words, Moderna’s +231% YoY revenue increase from $1,937 million in Q1 2021 to $6,066 million in Q1 2022 was so substantial that this more than offset the surge in expenses over the same period.

This means that MRNA’s Q1 2022 earnings beat was driven by above-expectations revenue rather than lower-than-expected expenses. Moderna’s actual first-quarter top line was +37% better than what the market had expected. Specifically, it was Moderna’s COVID vaccine that was the main driver of the company’s revenue beat. A May 4, 2022 Seeking Alpha News article highlighted that MRNA’s “COVID-19 vaccine branded as Spikevax made up $5.9B sales ahead of ~$5.1B in the consensus.”

The second key metric is the company management’s guidance for signed Advanced Purchase Agreements or APAs in full-year 2022.

Although both Moderna’s total revenue and COVID vaccine sales in the first quarter of this year were higher than what Wall Street analysts had forecasted, MRNA guided at its Q1 2022 earnings call on May 4, 2022 that it “signed Advanced Purchase Agreements for expected delivery in 2022 in the amount of approximately $21 billion” which is consistent with earlier guidance.

The unchanged 2022 APA guidance (despite revenue beat in Q1) and the wide variance of outcomes for this year’s revenue relating to APAs (discussed in greater detail in the next section) are responsible for Moderna’s -12% share price pullback between May 5, 2022 and May 9, 2022.

What To Expect After Earnings

After Moderna reported Q1 2022 earnings on May 4, 2022, investors find it hard to determine “what to expect.”

Even though MRNA offered a $21 billion estimate for the value of APAs that could be potentially realized as revenue or sales in 2022, the company acknowledged that there are two key swing factors which could result in actual product sales for the company this year deviating from guidance in a meaningful way.

One key swing factor is incremental new orders for COVID-19 boosters in different markets, especially the US. Moderna highlighted at the company’s Q1 2022 earnings briefing that new COVID-19 booster orders from the US “is quite likely we certainly believe there’s a recognition of the need for boosters” in the country. In addition, a greater proportion of orders derived from the US going forward might be positive for Moderna due to expectations of better vaccine prices in this market going forward. As the private sector is expected to take a more active role in procuring vaccines and setting vaccine pricing going forward, COVID vaccine prices should rise.

The other key swing factor is a delay in the delivery timing for orders pertaining to the World Health Organization’s COVAX (COVID-19 Vaccines Global Access) initiative. Notably, Moderna revealed at its recent first-quarter investor call last week that “an option for additional doses in 2022” with respect to COVAX wasn’t exercised. More importantly, countries can choose to reject the delivery of vaccines as per the chart below, and there is no guarantee that either there will be demand from other nations or that the vaccines will be allocated to other countries quickly.

How Does COVAX Deliver COVID-19 Vaccines

The Vaccine Alliance

In a nutshell, the market likes companies boasting significant revenue certainty, and this is clearly not the case with MRNA now.

What Is Moderna’s Long-Term Outlook?

As per S&P Capital IQ data, MRNA’s top line surged by +1,234% and 2,199% in fiscal 2020 and 2021, respectively. Moderna’s financial performance in these two years was obviously boosted by COVID-19, and the company is inevitably entering a much slower phase of growth in the coming years.

Moderna’s revenue is expected to increase by a more modest +19% in FY 2022, prior to witnessing sales contraction of -55% and -29% for FY 2023 and FY 2024, respectively as per consensus top line projections sourced from S&P Capital IQ. The sell-side analysts estimate that MRNA will subsequently return to positive sales growth territory in FY 2025 and FY 2026 boasting +24% and +18% revenue increases, respectively.

However, there is upside optionality that could enhance MRNA’s long-term growth prospects. As of March 31, 2022, Moderna had cash and investments amounting to $19.3 billion, which represented approximately 36% of the company’s market capitalization of $54.0 billion based on its last traded price of $135.80 as of May 10, 2022. If MRNA can allocate its excess capital well to value-accretive R&D (Research & Development) projects and M&A (Mergers & Acquisitions), the company’s long-term financial numbers could turn out to be better than what the market expects.

Is Moderna Stock At A Fair Valuation?

It is tough to assess if Moderna stock is at a fair valuation.

As I discussed earlier, MRNA’s actual revenue this year could potentially vary widely depending on COVAX deliveries and the US market’s COVID-19 booster orders. Put another way, Moderna’s sales in the very near term might be much higher or lower than market expectations, and the most important consideration is the COVID-19 situation. If new variants emerge that are deemed to be serious threats, demand for COVID-19 vaccines will rise. On the flip side, assuming that COVID-19 confirmed cases and deaths dip, Moderna’s COVID-19 vaccine sales might drop to a faster degree than anticipated.

When a company’s future sales are challenging to forecast, it is also equally difficult to value the stock. This point of view is reflected in the sell-side analyst price targets for MRNA. The lowest target price for Moderna is $80, which translates into a -41% downside from current price levels. The mean price target for MRNA is $225.29 which implies that its shares could rise as much as +66%. The Wall Street analyst who is the most bullish on MRNA thinks that the company’s stock has a capital appreciation potential of +273%.

Is MRNA Stock A Buy, Sell, or Hold?

MRNA stock is a Hold. I don’t like the variability in Moderna’s near term revenue. But I appreciate that Moderna has the potential to create value for its shareholders by making good use of the company’s significant cash pile.