Don’t Read Too Much into Novavax’s Recent Pullback

Novavax (NASDAQ:NVAX) may have had plenty of positive news in December. But that hasn’t translated into higher prices for NVAX stock.  Instead, investors are focused entirely on one thing.

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

That would be the company’s prospects of getting Emergency Use Authorization (EUA) for its Covid-19 vaccine from the Food and Drug Administration (FDA). As I’m writing this, the vaccine maker has yet to submit its EUA application. Even as it’s stated it will do so before the end of 2021.

With this, the market’s still bearish on the stock. At around $153.25 per share today, it’s down by more than 50% off its all-time high. However, while it’s unclear whether the company will promptly apply for an EUA for an FDA, or if the FDA will grant it one, like I’ve discussed before, Novavax doesn’t need success in the U.S. market for its shares to move higher.

It just needs to see a rollout of its candidate overseas over the next year. If this happens, the company could deliver results in line with analyst projections. In turn, sending the stock back to at least $250 per share.

The Latest With NVAX Stock

Over the past month, Novavax has made material progress when it comes to regulatory approval of its vaccine. First, the World Health Organization (WHO) has given its candidate  an Emergency Use Listing (EUL). Along with this, it’s also been recommended for approval from European Union (EU) health authorities.

Again though, like I mentioned above, this hasn’t resulted in a big rally for NVAX stock. Shares have instead gone in the other direction. Yes, vaccine stocks in-general have been selling off. Also, there may be a bit of “sell the news” going on. More investors are cashing out rather than jumping in, after the EUL and EU approval recommendation news.

But what’s likely the main driver is the company’s lack of progress when it comes to getting U.S. EUA for its candidate. As it stands now, Novavax does not look likely to meet its deadline of getting its regulatory package in with the FDA by Dec 31. This makes it questionable when exactly this vaccine will become available in the United States. More importantly, it makes it questionable whether it can capitalize on increased interest for boosters that can help protect against new variants.

Then again, upside with Novavax shares doesn’t hinge completely on success in the domestic market. If it can parlay its recent regulatory success into sales overseas, the company will have little issue hitting 2022 earnings projections.

What an Overseas Rollout Means for Novavax

How far could NVAX stock climb if it successfully rolls out its candidate during the year? Per analyst estimates, the company could generate earnings per share (EPS) of between $13.89 and $49.20. The average estimate comes in at $25.71 per share.

Based upon the forward price-to-earnings (P/E) ratio of its closest peer, Moderna (NASDAQ:MRNA), the market could give the stock a similar earnings multiple (9.1x). Multiply that by $25.71, and you get a target price of around $234 per share, around 52% above its current stock price.

If it hits the top end of estimates? Shares could climb to as much as $447 per share, nearly three times where it changes hands today. Granted, hitting this top end may be a challenge. This candidate’s less stringent storage requirements could make it a widely used option in developing economies, enabling it to deliver earnings of $25.71 per share this year.

However, with vaccination rates in many major European countries well over 80%, EU approval may not translate into big sales. That said, the vaccine hesitant may opt for this non-MRA alternative. The same could play out here in the U.S., assuming it can obtain an EUA within a reasonable timeframe. Hitting the top end of estimates may be possible, yet I would buy this only on its chances of hitting sell-side earnings consensus rather than the top end of estimates.

Bottom Line: Watch Out for Another Slide, But Consider it a Buy

If it fails to put in its EUA application by Dec 31, don’t be surprised if Novavax shares continue to move lower. Nevertheless, you may want to consider it a cautious buy on further weakness.

Months down the road, if it brings its candidate to market overseas? The company’s first bit of material sales could help renew bullishness for shares, enabling them to make their way back well above $200 per share. Progress getting U.S. approval could have an even more dramatic effect on its stock price.

Still a vaccine play with high potential, consider NVAX stock a buy at today’s prices.

On the date of publication, Thomas Niel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Thomas Niel, a contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.


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