Novavax Is Worth $165 Once Its Covid-19 Vaccine Is Ready

Novavax (NASDAQ:NVAX), a biotechnology company developing next-generation vaccines, is on track to proving its Covid-19 vaccine works. Once it is clear that the vaccine works, you can expect to see NVAX stock move significantly higher.

Novavax (NVAX) logo surrounded by medical supplies
Source: Ascannio/

As I showed in my Sept. 14 article, the stock is worth well over $200 per share once that happens. This represents a potential doubling in NVAX for investors willing to take the risk now.

The company is at various stages in its clinical Phase 3 trials in the U.S. and the U.K. However, they better hurry up, since other vaccine makers are close to rolling out their already proven vaccines.

State of Play With Novovax’s Vaccine

On Nov. 9, Novavax said it had expanded its U.K. trial to 15,000 participants. It plans to be at full enrollment by November end. In addition, the company said data would be available by the early first quarter of 2021.

Its Phase-3 trial in the U.S. and Mexico will involve 30,000 participants. It will be with diverse populations most vulnerable to Covid-19 across race/ethnicity, age and those with co-morbidities.

More importantly, during the quarter Novavax signed deals with Australia, the U.K., India, and South Africa to distribute its vaccine. That will help assure it of revenue even if its vaccine gets squeezed out of US market share.

However, the good news for investors is that its capacity to manufacture vaccines has risen to 2 billion doses annually by mid-2021. That means it will have the wherewithal to roll out needed vaccines and generate significant revenue.

Financials Depends on Vaccine Success

This revenue is sorely needed. For example, in Q3 Novavax had just $157 million in sales, but it lost even more, $197.3 million, in net income. In other words, the company needs to be able to produce huge operating leverage to crank out positive profits and free cash flow (FCF).

However, $122 million of that loss was non-cash in nature. As a result, its loss in cash flow from operations (CFFO) was only $6.5 million during the quarter. That is a lot less on a cash flow basis that the net income loss.

We figured this out by comparing the Q2 year-to-date (YTD) CFFO of $92.5 million with the Q3 YTD CFFO of $86 million. This shows that Novavax had YTD positive cash flow before capital expenditures (capex), although it had a small setback in Q3.

This also shows up in YTD free cash flow (FCF), i.e., CFFO minus capex. For instance, as of Q3, YTD FCF was positive $73.4 million. However, since Q2 YTD FCF was $88.64 million, this means the FCF loss in Q3 was $15.22 million.

But my point is that this is still a far cry from the reported $197 net loss. In other words, Novavax is not in that bad shape financially. It has plenty of financial capacity to wait. Novavax can last until mid-next year when it starts producing huge cash flow from its Covid-19 vaccine.

Moreover, at the end of September, Novavax had $504 million in cash and securities. So far this year it has sold $445.6 million in equity and $200 million preferred stock. The company said in its latest 10-Q on page 38 that its “current capital is sufficient to fund our operating plans for a minimum of twelve months.”

What NVAX Stock is Worth

My last valuation estimate assumed Novavax produces 2.5 billion doses annually at $10 per dose with a 5% margin. But this quarter, the company said it would produce just 2 billion doses. Moreover, I assumed its vaccines would be retaken every two years.

My new estimate is more conservative. I now assume 2 billion annual doses retaken every five years. Therefore the new estimate of revenue is $600 million annually. Here is how I came up with that figure.

First, multiply 2 billion times $10 per dose for $20 billion in gross revenue. Then take 15% of that figure as a net income/royalty margin. That result, $3 billion, is divided by five years to get $600 million annual revenue.

I could be way off with my valuation.  For example, I used a 17.5 multiple since I figured its 20-year patent would have 17.5 years left. However, to be more conservative I think a 15x multiple is not unreasonable.

This gives NVAX stock a $9 billion market capitalization (i.e., 15 times $600 million). Compared to its present $5.25 billion market cap, it is still worth 71.4% more. That puts NVAX stock at $175.86 per share.

Moreover, if there is an 85% chance it reaches $175.86 and a 15% chance it will stay at $102.60, the expected price is $164.87. This is still a great 61% expected ROI for investors today.

On the date of publication, Mark R. Hake did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.

Mark Hake runs the Total Yield Value Guide which you can review here.

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