Speculators who traded Moderna (NASDAQ:MRNA) as it broke out from around $65 to almost $180 in the last month did very well. Conversely, when Moderna stock fell the next day in early-Dec. to $140, it tried to stage a come-back.

Source: Ascannio / Shutterstock.com

The stock’s jump and then drop is nothing new. Markets are selling into the good news Moderna is enjoying.
As government agencies approve the use of Moderna’s vaccine against Covid-19 and increase their orders, the stock will respond favorably.

The U.S. Food and Drug Administration (FDA) authorized the emergency use of mRNA-1273. Under an Emergency Use Authorization, Moderna may deliver the vaccine to the government immediately.

The U.S. government ordered 200 million doses so far. It may purchase another 300 million doses, next. Importantly, the ~20 million dose delivery in the U.S. by the end of Dec. 2020 will give Moderna key clinical data.

The company has only clinical data from its trials. The study involved up to 30,000 subjects. So, after 2 million diverse Americans receive the vaccine, Moderna will assess its safety profile and its efficacy.

From the study, it knows the most common adverse reactions (“AR”) after the two-dose series. They are injection site pain 88.2% of the time, erythema (8.6%), swelling (12.2%), and ipsilateral lymphadenopathy (14.2%).

Moderna will have to worry about the grade 3 (severe) reactions after the second injection. If there is a pattern between AR and age, ethnicity, or dosage levels, the company may refine the vaccine’s safety in the future.

A Closer Look at Moderna Stock

On Dec. 18, the European Commission added 80 million doses to its commitment of 160 million doses. Moderna will begin its deliveries of the vaccine in early 2021.

The European Medicines Agency’s (EMA) scientific committee for human medicines (CHMP) will meet on Jan. 6. Markets should not expect any new developments for Moderna stock after the meeting. Yet the recent selling pressure is disconcerting.

The unfortunate downside of positive momentum lifting the stock is the selling that follows. Patient investors may look at the stock’s decline as an opportunity. If the vaccine is effective in eliminating the spread of the novel coronavirus, then expect annual recurring revenue to increase from here.

In the best-case scenario, Moderna’s vaccine is more effective than that offered by Pfizer (NYSE:PFE) and BioNTech (NASDAQ:BNTX). Furthermore, its efficacy would diminish the low-cost advantage of AstraZeneca’s (NASDAQ:AZN) vaccine.

By assuming Moderna is the only vaccine supplier, investors may assume strong revenue growth in the next two fiscal years. In the 5-year discounted cash flow model, the stock has a fair value of almost $200.

In a model courtesy of finbox, apply a steep discount rate that would account for many unknowns ahead. Conversely, if Moderna ships the vaccine without any delays or added costs, this discount will prove too pessimistic. Readers may lower the rate and come up with a higher price target.Below are the revenue projections:

Table courtesy of finbox

Readers may click on the finbox model to change the assumptions and re-calculate the fair value. For example, lowering the discount rate and increasing the growth rate would increase the fair value.

Risks and Your Takeaway

Source: StockRover.com

As shown in the chart, the poor value, quality, and sentiment score is offset by the decent growth score.

The scores suggest that investors will need to take a leap of faith at the stock’s current price. In return for taking the risk of paying a premium, shareholders are rewarded when Moderna’s vaccine sales grow in 2021.

The sentiment score of 30/100 reflects the recent profit-taking from traders who decided to lock in profits instead of waiting. Those investors are betting that the low stock quality (poor net margin, gross margin, and return on invested capital) justifies the exit. Still, the quality score will improve as Moderna books revenue each quarter.

Markets are also ignoring the company’s vaccine developments in cancer research (immuno-oncology) and cancer vaccines.

If the clinical results are any indication, Moderna has a good chance of helping countries stop the spread of the virus. By ending the pandemic, vaccine orders will increase. The company may further its research in cancer and other diseases with the increased cash flow. When that happens, the stock will look inexpensive at current levels.

Disclosure: On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article.