Over the past two years, a question that often popped up was: Is Moderna (MRNA -2.45%) stock too expensive? That's because of the biotech company's enormous gains over that time period. It soared 1,200%. Investors initially bet on its ability to bring a coronavirus vaccine to market. Then, they stuck around -- and many more joined them -- as the vaccine generated billions of dollars in revenue and profit.
In recent days, though, Moderna stock has stumbled. That's because some investors worry about vaccine revenue in a post-pandemic world. But I think there's a lot more ahead for Moderna stock. And that means it's a bargain at today's level. Here are three reasons why.
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1. Coronavirus vaccine revenue isn't over
Moderna has estimated that last year's coronavirus vaccine sales will be about $17.5 billion. The biotech company will report final full-year earnings figures in the coming weeks. But this isn't likely to be Moderna's last billion-dollar year.
The company already has secured advance purchase agreements (APA) for vaccines and boosters from countries around the world. In fact, according to APAs signed, Moderna's 2022 product revenue will total $18.5 billion -- and options could add another $3.5 billion. This means revenue is set to surpass that of last year. But this isn't a surprise. Earlier last year, CEO Stéphane Bancel predicted need for the vaccine or boosters may increase in 2022 from 2021 levels.
Right now, it's impossible to estimate the exact level of future vaccine revenue. But it seems likely the vaccine will remain a blockbuster product for quite some time. Experts say the coronavirus will continue circulating even in a post-pandemic world. And vaccine makers have said an annual vaccine or booster will become the standard means of protection. This leads to my next point...
2. Promising future revenue prospects
Moderna is working on a combined coronavirus/flu vaccine. So is rival Novavax -- Novavax actually is more than a step ahead here. Novavax has completed enrollment in a phase 1/2 trial. Moderna's program still is preclinical. But there is room for more than one player in what could be a very promising market. About half the U.S. population usually goes for a flu shot. Combining flu protection with coronavirus protection is likely to interest this group. And here, I'm just referring to the U.S. Both companies would launch their products worldwide.
Sometimes it's difficult to look beyond the coronavirus program because Moderna is generating so much revenue from it and has so many related candidates in the pipeline. The company is testing seven coronavirus booster and vaccine candidates at the moment. And, of course, this is positive because it may translate into an additional commercialized product. But it's also important to look beyond Moderna's coronavirus work. And here, there's a lot to be excited about too.
Moderna has 40 programs in development and several have advanced to at least phase 2 trials. The one I have my eye on though is Moderna's cytomegalovirus (CMV) candidate. It entered a pivotal phase 3 study in the fall. Right now, a vaccine doesn't exist for this common but sometimes devastating virus. So, if all goes well for Moderna, it may be the first to market. The company has said peak annual revenue for a CMV vaccine could be between $2 billion and $5 billion.
3. Moderna's financial position
Various financial metrics show Moderna's health right now. For example, return on invested capital and free cash flow both have been on the rise.
MRNA Return on Invested Capital data by YCharts
And the fact that Moderna's cash levels have been increasing also is positive. Cash and equivalents totaled $15.3 billion as of the end of September. That's up from $5.2 billion in December 2020. This is key because it means Moderna has the resources to advanced programs in its pipeline or buy access to new product candidates. The company has what it takes to prepare in case coronavirus vaccine revenue does decline significantly at some point -- and eventually compensate through other programs.
And, finally, a quick mention of Moderna's valuation. The stock is trading at about six times forward earnings estimates. That's down from more than 18 in August. Considering the three points above, Moderna looks dirt cheap today -- especially for investors interested in buying now and holding on for the long term.
