Coronavirus Vaccine Makes Moderna Stock a Valuation Momentum Trade, Says J.P. Morgan

What is it that you look for in a biotech stock?

Is it a good price-to-earnings ratio? Because at more than $53 per share, and trailing-12-month profits of negative $1.50 a share, Moderna Inc. (MRNA) doesn’t have that.

Is it a reasonable price-to-sales ratio? Moderna stock has a market capitalization of $19.6 billion, and trailing-12-month sales of less than $53 million — giving it a P/S ratio of 370.

How about a trend to stronger and stronger sales, such that, even if the stock doesn’t look like a bargain today, there’s at least a clear path to it growing into its valuation over time? Moderna’s sales have been shrinking for three straight years.

Fact is, if you are any kind of a value investor, there’s very little in Moderna’s business to like, and no good way to value the stock. Lucky for Moderna shareholders, therefore, that in today’s note out of investment bank J.P. Morgan, analyst Cory Kasimov makes the argument that Moderna is a “valuation agnostic momentum trade,” letting you off the hook for having to justify the stock’s valuation at all.

How does Kasimov come to this conclusion? One word says it all: Coronavirus.

Running down the state of development of Moderna’s experimental mRNA-1273 vaccine candidate for treating COVID-19, Kasimov notes that “while there’s still a long way to go and plenty of risk to navigate,” Moderna has already made a lot of progress, and appears well on its way to making more.

A Phase 1 trial of the vaccine is underway, and the Food and Drug Administration has already “cleared” the company to go ahead and begin a Phase 2 trial of the vaccine. By early summer, if all goes well, mRNA-1273 could be in the first (of multiple planned, placebo-controlled) Phase 3 trials, and it’s entirely possible we could see all of this result in a vaccine by 2021.

What could development of such a vaccine mean for Moderna, and importantly, for its sales, sales growth, and earnings?

Instead of trying to answer that question, Kasimov punts: “In our view, it’s almost unquantifiable at this stage as there as so many economic and scientific unknowns.” But even more than that, he almost seems to think the question is irrelevant. Whether mRNA-1273 turns into a sales driver for Moderna or not, positive news reports about the vaccine’s development have the power to drive the stock up in a “momentum trade” regardless.

And Kasimov could be right about that. Thursday’s earnings report out of Moderna, after all, contained plenty of information on the company’s progress with mRNA-1273, as well as with other vaccines for treating cytomegalovirus, Zika, human metapneumovirus, and others. But as far as revenues go, Moderna collected only $8.4 million in Q1 (down by half from Q1 2019), alongside a $0.35 per share loss.

Just as Kasimov might have predicted, investors responded by bidding up Moderna stock by 8.7%.

So long as investors remain willing to content themselves with press releases and drug trial results, and leave sales growth and profits to another day, Kasimov’s call rating Moderna stock “outperform” with a $60 price target could be the correct one. (To watch Kasimov’s track record, click here)

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