The 2021 post-Covid stock market bubble burst, leaving investments viewed as pandemic winners mostly shunned by traders. Fund managers prefer not to be caught invested in backward-looking fundamentals that appear spectacular, but tail off significantly into the future. Is Moderna (MRNA) one of these types of stocks?
Let's see. Moderna had a blockbuster 2021, selling its Covid-19 vaccine, booking $18.5 billion in revenue and $28.29 in earnings per share. Even though analysts expect 2022 to maintain solid revenue of $22 billion and EPS of $27, 2023 estimates are expected to decline by over 50% in 2023. EPS could clock in around $10 -- with a wide range of outcomes forecasted.
Wall Street views the steep earnings decline with trepidation, wary of a potential perpetual decline that could justify the company's 5 price-to-earnings. But the slash in earnings expectations gives investors only a myopic view of the prospects for Moderna. This shortsightedness, in turn, gives buyers with a longer-term timeframe an opportunity to own the shares at a reasonable price.
Moderna's mRNA technology led to an enormous breakthrough in vaccine development, imparting essential immunity against all known variants of Covid-19. Subsequent attempts to improve the flu vaccine haven't provided superior immunity for now. So, what can Moderna do for an encore? Fortunately, there's a pipeline of targeted therapies Moderna is testing for its mRNA technology.
Morgan Stanley took a deep dive into rare diseases potentially treated by Moderna's mRNA technology. The firm believes this category could be the next multi-billion-dollar non-Covid growth driver.
"Many rare diseases are caused by a defective protein which an mRNA therapeutic could replace with a functional protein. Proof of concept could unlock a key non-COVID pipeline story. We expect Moderna to present initial data in rare diseases PA/MMA in 2022," wrote Morgan Stanley analysts.
As part of Morgan's in-depth research, the firm believes mRNA can address enzyme deficiency disorders that current treatments can't reach. Morgan highlights nine enzyme deficiency diseases of the liver that are candidates for Moderna's technology, two are in Phase 1 trials and another three are in a preclinical stage.
As these trials advance, Moderna will continue to have a solid stream of cash flow from Covid vaccines. As vaccines are approved for a younger cohort, recently for children ages six months to 5 years old, and additional boosters are considered, Moderna's vaccine business will endure. It's impossible to gauge how long Covid-19 will prove problematic or how many variants may emerge, which gives investors pause around the uncertainty. Yet, the company now has a $9 billion cash hoard that can be used to explore the full potential of its mRNA tech.
As with any biotech company, risks abound. Competitors with an improved therapy or methodology could emerge. Moderna's trials can take years, with delays in generating clinical data. Efficacy or safety concerns or both can cause investors to write-off subsequent readouts across additional modalities, notes Morgan Stanley.
Wall Street will likely continue to ignore the incremental Covid vaccine advancements from Moderna, which may prove frustrating to investors for a stock with a 5 P/E. Bear markets are built on skepticism, and Wall Street is not pricing in possible future breakthroughs. The potential for the next substantial developments from mRNA is where long-term investors could win big if any future treatments prove viable.