Should investors be holding on to Novavax shares?

Novavax’s [NVAX] stock could well be worth holding as Thursday's second-quarter earnings come into focus. Speculation surrounding vaccine developers is inescapable at the moment. Any COVID resurgence boosts the stock and with delta case numbers on the rise, one way of looking at the Novavax stock is that it is a ‘defensive’ play for the short- to medium-term, a necessary part of anyone’s equity portfolio to balance against any ‘growth’ plays.

 

What’s happening with Novavax’s stock?

Novavax’s stock has yo-yoed since the start of June, oscillating between the $170 and $220 levels. Overall, Novavax’s stock is up over 50% since 13 May and over 63% since the start of the year. A year high of $329.99 was hit on 8 February, although since that point the Novavax stock has seen a 42% decline as part of the selloff in last year’s coronavirus stocks. Upcoming second-quarter results could inject some adrenalin into the Novavax stock, possibly breaking past the $220 level.  

 

Is Novavax stock a defensive play?

Despite Novavax’s vaccine being released months after Pfizer’s and AstraZeneca’s, the relatively slow rollout of vaccines outside the UK, US and Canada means that demand is still high. Australia, for example, has managed to vaccinate only 15.42% of its population against Covid-19, while Canada has managed a 59.47% vaccination rate according to data from Our World in Data as of 3 August. More startling is that only 1.1% of people from low-income countries have had their first dose of the vaccine.

Demand for Novavax could also come from countries that already have a high rate of vaccinations - such as the UK and Israel - with a surge in case numbers and the coming winter months making a strong case for additional booster shots.

“Novavax’s shot seems well suited to do much of the heavy lifting in getting the global population, particularly in emerging markets, vaccinated, given that it is easier to store compared to mRNA vaccines, relatively cheap, and apparently very effective” - Trefis analysts

 

“Novavax’s shot seems well suited to do much of the heavy lifting in getting the global population, particularly in emerging markets, vaccinated, given that it is easier to store compared to mRNA vaccines, relatively cheap, and apparently very effective,” wrote Trefis in a Forbes article published in May.

Novavax is also still in the process of getting regulatory approval in the US, UK and Europe. The company said in June that it would file for FDA approvals in the third quarter for its COVID-19 vaccine NVX-CoV2373, which showed a 90.4% overall efficacy.

In the same month, the vaccine maker published results of UK Phase 3 clinical trials that confirmed an overall efficacy of 89.7% in the final analysis. Approval would mean an uptick in Novavax’ s stock.

 

When is Novavax reporting Q2 earnings?

5 August

 

What is Wall Street expecting?

Wall Street is expecting Novavax to post a loss of $3.63 per share, up from a $0.3 loss per share in the same quarter last year. Revenue is forecast at $387.87m, up a massive 880% from the $39.5m seen last year. For the full year, expectations are that revenue will come in at $2.16bn, up 354% year-on-year, on losses of $6.42 per share.

In the first quarter, Novavax’s revenue came in at $447m, up from the $3m in the same period last year. A more useful comparison might be quarter-on-quarter, with last quarter’s haul being a significant improvement on the $279.7m seen in the fourth quarter 2020.

  

Shareholders should watch out for any news on sales in global markets. In the first quarter, Novavax reported progress in trials in South Africa, the US and Australia for its COVID-19 booster. In June, the Indian government announced that the Serum Institute of India was preparing to produce Novavax in the country. India has managed to vaccinate 7.55% of its population, according to Our World in Data.

Mark R. Hake writing on Investor Place suggests that based on revenue forecasts, Novavax’s stock should trade at $473 - a 159% upside on Tuesday’s close.

“Even if we used Moderna’ s 2021 P/S metric of 6.7 times for NVAX stock, the resulting target market value of $35 billion is still over twice present value (+126%). This implies that NVAX should trade for around $473,” Hake wrote.

Hake’s target might seem high, but among the analysts tracking the stock on Yahoo Finance there’s consensus that there’s plenty of upside on the stock, which carries an average $271.75 price target - hitting this would see a 48.9% upside on Tuesday’s close. Of the seven analysts offering recommendations in August, two rate the stock a Strong Buy and five a Hold.

“Even if we used Moderna’s 2021 P/S metric of 6.7 times for NVAX stock, the resulting target market value of $35 billion is still over twice present value (+126%). This implies that NVAX should trade for around $473” - Mark R. Hake

 

The Novavax stock forward price to earnings ratio of 5.14 is also comparatively cheaper than Moderna’s [MRNA] 19.32. Moderna is also trading around its all-time high and ahead of the median analyst price target.

Vaccinating a planet is a long-term goal and the need for Novavax’s product is unlikely to go away anytime soon. In full-year 2022, sales are expected to hit $5.23bn, on earnings of $35.19 per share, according to data from Yahoo Finance. This could bestow Novavax’s stock with some of the defensive characteristics of pharmaceutical stocks, acting as a counter balance to the macroeconomic headwinds that affect both growth and cyclical stocks.