Please ensure Javascript is enabled for purposes of website accessibility

Why Moderna Stock Surged Today

By Joe Tenebruso – Jul 13, 2020 at 2:21PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

One analyst likes the drugmaker's coronavirus vaccine's prospects for approval.

What happened

Shares of Moderna (MRNA -3.18%) rocketed higher on Monday, following bullish analyst commentary and news that the biotech company would be added to a popular stock market index.

As of 2:05 p.m. EDT, Moderna's stock was up more than 20%.

So what

Moderna's experimental COVID-19 vaccine could produce annual sales of more than $5 billion, should it prove both safe and effective. So says Jefferies analyst Michael Yee, who began coverage of Moderna's stock with a buy rating and a $90 target price. 

Though he cautioned Moderna's vaccine candidate may not work and acknowledged that analysts are "hugely divided on valuation," Yee thinks investors' potential rewards are worth the risk.

"We believe [Wall] Street will be surprised to the upside if the COVID-19 vaccine works, gets approved by early 2021, and there are multi-billion dollars of purchase orders from USA and around the world," Yee said. 

A person is pointing to an upwardly sloping line.

Moderna stock soared on Monday. Image source: Getty Images.

Moderna's share price gains were also fueled by news its stock would be added to the Nasdaq-100 Index. It will join the popular technology-focused index before the market opens on July 20. 

Now what

Although being added to a stock index has no impact on the fundamental value of a business, funds that track the Nasdaq-100 will soon need to purchase shares of Moderna. Traders know this, and they tend to try to front-run these funds' often-large purchases, which helps to explain some of the buying that helped to drive the stock higher on Monday.

More interesting is Yee's assertion that Moderna will receive "at least" an emergency use authorization for its vaccine candidate by early 2021. "We believe the company's COVID-19 vaccine mRNA-1273 will work and big orders will come in," Yee said. "We think billions in sales would be reasonable and there would be high demand over the first one to two years." 

Moderna's phase 1 results were promising, and the company currently has a phase 2 study under way. It hopes to begin a phase 3 trial in the coming weeks. 

However, Moderna is facing formidable competition from the likes of Pfizer, Johnson & Johnson, AstraZeneca, and more than 100 other companies and universities. Moderna will not only need to prove that its vaccine is safe and effective, but also better than that of its competitors. While certainly possible, doing so won't be easy.

Still, judging by its stock's recent gains, investors seem to like Moderna's chances of success.

Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.