Moderna's Unexpected Profit: Is Now the Time to Buy?

On Thursday, Moderna reported an unexpected profit for the third quarter, surpassing Wall Street estimates, driven by effective cost-cutting measures and stronger-than-anticipated COVID vaccine sales.

The company reported Q3 revenue of $1.86 billion, with adjusted earnings per share of $0.03, significantly outperforming analysts' expectations of $1.25 billion in revenue and a loss of $1.90 per share. Moderna’s newest COVID vaccine received U.S. approval three weeks earlier than its previous version, allowing the company to meet demand more effectively and achieve notable revenue growth.

This quarter also marked the first inclusion of sales from its respiratory syncytial virus (RSV) vaccine, the company’s second-ever commercialized product.

However, the RSV vaccine contributed only $10 million in sales—well below analysts' expectations of $132 million. The company attributed the lower-than-expected sales to its late approval, which resulted in most vaccine distributors finalizing orders before Moderna’s RSV vaccine was cleared by regulators.

Despite this, Moderna noted that its RSV vaccine has significant potential due to its ease of storage and administration. Unlike competitors from GSK and Pfizer, Moderna’s RSV vaccine can be stored frozen and administered via a syringe, offering convenient delivery. It also has no reported risk of Guillain-Barré syndrome, which has been a concern with other RSV vaccines.

Moderna’s stock has plummeted nearly 50% this year, largely due to declining COVID vaccine demand post-pandemic. In 2023, the company’s revenue dropped 64% year-over-year to $6.8 billion as COVID-19 vaccine demand waned. Moderna projects its 2024 revenue to drop further to around $3.5 billion. However, despite these headwinds, analysts consider Moderna’s stock undervalued at the current level of around $50.

Long-Term Potential and Product Pipeline

Moderna’s recent profitability reflects its ongoing cost-cutting plan, targeting $1.1 billion in savings by 2027. This not only strengthens short-term profits but also sets the stage for future growth. Importantly, Moderna has around 45 products in development, with nearly a quarter expected to reach the market within the next three to four years. Built on its mRNA platform, these products include an independent flu vaccine, a personalized cancer vaccine developed in partnership with Merck, and vaccines for latent viruses. Notably, a recent clinical trial demonstrated promising results for its skin cancer vaccine when combined with Merck’s Keytruda, showing a 44% reduction in the risk of recurrence or death among advanced melanoma patients.

Alongside its strong product pipeline, Moderna holds $9.2 billion in cash reserves, supporting potential acquisitions in the biotech sector. Management indicated plans to seek approval for a “next-generation” COVID vaccine by year-end, including a combination shot targeting both COVID and the flu. Additionally, Moderna aims to expand approval for its RSV vaccine to cover high-risk adults aged 18-59. These steps could lay a strong foundation for the company’s future growth.

Stock Volatility and Valuation Opportunity

Moderna’s stock has shown significant volatility over the past few years, with returns of 143% in 2021, -29% in 2022, and -45% in 2023, reflecting the fluctuations in COVID vaccine demand. This volatility stands in contrast to the more stable S&P 500, yet many analysts see notable upside potential. The current average analyst target price is $91, suggesting approximately 80% upside from the current level.

With the uncertain macroeconomic environment, investors are left questioning whether Moderna might face challenges similar to those in 2022 and 2023 or if a recovery is on the horizon. While the decline in COVID-related revenue has presented obstacles, Moderna’s diverse product pipeline, cost management, and new vaccine potential are encouraging. For long-term investors, the current price could represent an attractive entry point.

In summary, although Moderna’s COVID vaccine demand has waned, the company’s investments in RSV and cancer vaccines, alongside a robust cash reserve, indicate strong potential ahead. At the current price level of around $50, Moderna’s stock appears undervalued and worth considering.