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Moderna: High Profits, Uncertain Future

Moderna (MRNA) has become one of the hottest stocks in the pharma/biotech world, thanks to its success with its COVID-19 vaccine Spikevax. Moderna has become highly profitable in 2021, and that will persist throughout 2022 and possibly 2023.

Beyond that, however, the company’s prospects are less certain. The pipeline is relatively slim still, for a company valued at more than $180 billion. I thus am neutral on the stock for now, as its longer-term prospects are too uncertain for a bullish rating. (See Moderna stock charts on TipRanks)

High Profits in 2021 and 2022

Moderna does own and sell one of the leading COVID-19 vaccines on the market. Its Spikevax vaccine has shown strong results in a wide range of studies when it comes to preventing severe effects of COVID.

This, coupled with Moderna’s ability to ramp up production quickly, allowed the company to generate massive revenue and earnings growth in 2021. During the most recent quarter, Moderna generated revenues of $4.4 billion, which was up by a massive 6,500% year over year, aided by the fact that Moderna’s revenues prior to the commercialization of Spikevax were very small.

Thanks to its massive revenue growth and the impact of operating leverage, Moderna was able to see its net profits climb at an even stronger rate. Net earnings per share came in at $6.46 during the most recent quarter, which equates to a company-wide bottom line of around $2.8 billion. On an annualized basis, this equates to around $10 billion in net profits — undoubtedly a great feat for a company that was not profitable prior to 2021.

With almost all of its revenue being tied to its COVID vaccine, however, Moderna will not necessarily continue to grow at the current rate. In fact, most analysts believe that profits will peak in 2021 and that profits in 2022 will be somewhat lower compared to this year’s expected net earnings. The consensus earnings per share estimate for 2021 is $29.78 at the time of writing, while analysts are forecasting earnings per share of $27.15 for next year — which would still be pretty strong and equate to billions of dollars in net profits.

Beyond 2022, however, things become less certain. As the pandemic will hopefully end eventually, which will lead to weaker demand for Moderna’s Spikevax, Moderna is forecasted to experience a steep earnings decline in 2023. In fact, analysts are expecting earnings per share of just $11.90 for that year, which is less than half the earnings forecasted for 2021 and 2022.

Interesting Pipeline Assets, but no Certainty

Beyond Spikevax, Moderna owns a couple of interesting pipeline assets, but the outlook for those is not very certain. Among others, pipeline candidates include vaccine candidate mRNA-1647 for Cytomegalovirus, and there also are vaccine candidates for Zika virus and Influenza viruses.

Potentially most interesting is the personalized cancer vaccine candidate that is currently being evaluated in a Phase II study. Oncology is, of course, a very large market in the pharma space, thus success with this candidate could lead to a huge market opportunity for Moderna. It is, however, far from certain that Moderna will be able to repeat the success it has had with Spikevax. Additionally, of course there is a chance that some or even all of its pipeline candidates fail to replicate Spikevax‘ massive success.

With just 3 Phase II candidates in its pipeline, Moderna has a relatively small pipeline compared to other pharma and biotech companies valued at $150 billion and more. This, in turn, is why I believe that an investment in Moderna is somewhat speculative. At around 15x this year’s net profits, shares are not especially expensive, but when we consider the fact that earnings are forecasted to drop in 2022 and 2023, other stocks in this space seem like a better value, I believe.

Turning to Wall Street, Moderna has a Hold consensus rating, based on the 4 Buys, 8 Holds, and 2 Sells assigned in the last three months. At $305.91, the average Moderna price target implies 32.0% downside potential.

Disclosure: At the time of publication, Jonathan Weber did not have a position in any of the securities mentioned in this article.

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