Vaccine Stocks: Down but Not Out?

Stock market investors showed their resilience on Monday, as major market indexes bounced back from early losses to finish the session solidly higher. Even though the gains for the Dow Jones Industrial Average (^DJI 0.56%), S&P 500 (^GSPC -0.88%), and Nasdaq Composite (^IXIC -2.05%) were all less than 1%, their moves higher nevertheless marked a change in sentiment. However, all eyes remain squarely focused on the Federal Reserve as investors wait to see whether the central bank makes an even more aggressive move to tighten monetary policy this week than economists already expect.

Data source: Yahoo! Finance.

Shares of vaccine stocks were sharply lower on Monday, however, bucking the upward market trend. Companies providing protection against COVID-19 saw investors sell off their shares after President Joe Biden's comments on 60 Minutes over the weekend saying that the pandemic is over.

Biden's observation that the vast majority of Americans aren't wearing masks or otherwise taking overt steps to protect themselves from exposure to COVID-19 is true on its face. But it doesn't mean that companies like Moderna (MRNA -0.58%) and BioNTech (BNTX 0.74%) are going to see their business prospects suddenly disappear, or that newer entrants like Novavax (NVAX 2.06%) are simply too late to profit from their life-saving innovations. Indeed, it might turn out that vaccine stocks  have more staying power than investors are giving them credit for having.

Big losses in the vaccine space

The performances of vaccine stocks on Monday, however, were ugly. Moderna fell by more than 7%, while BioNTech suffered a nearly 9% drop. Novavax shares fell by 6.5%.

The day's declines added to the steep losses that these stocks have suffered throughout 2022. Year to date, Moderna and BioNTech have lost nearly half their value. The hit for Novavax has been even more severe, with shares down fully 80% from where they started the year.

Are vaccine stocks doomed?

Looking at traditional valuation measures shows just how bearish investors are about the prospects for the vaccine industry. With its market capitalization at $50 billion, Moderna is priced at about 3.5 times its trailing 12-month net income of $14.06 billion. BioNTech's trailing 12-month net income of $11.75 billion gives the $32 billion company a price-to-earnings multiple of less than 3.

The reason, though, is simple to understand. A huge portion of the revenue that these companies have brought in over the past year has come from COVID-19 vaccine sales. If the pandemic is over and people and governments around the world stop purchasing those vaccines, investors are concerned that the businesses will revert to their pre-pandemic appearances. For Moderna and BioNTech, whose sales jumped more than 450-fold and 200-fold, respectively, between 2019 and the past 12 months, that would be potentially disastrous.

Meet me in the middle

Although it's theoretically possible that interest in COVID-19 vaccines will dry up, what's more likely is that demand for Moderna and BioNTech's products from governments and private health coverage providers will persist, but at a lesser intensity. After all, the federal government is still seeking $22.4 billion in funding to stockpile vaccines and tests, along with providing research and development and coordinating global assistance efforts. Public health officials warn that any autumn or winter surge of new COVID-19 cases could leave them on the back foot in responding.

Moreover, international governments are far from united in declaring victory over COVID-19. China has maintained a strict zero-COVID stance in its efforts to fight the virus' spread. Even those nations that have loosened restrictions still recognize the disease as a serious threat and are looking to companies like BioNTech and Moderna to keep working on solutions and improved up-to-date vaccines.

It's appropriate for vaccine stocks to have extremely low multiples, given that their profits are likely to fall from their recent record levels. But their earnings also aren't likely to plunge quite as much as the bears believe. If BioNTech and Moderna can maintain even a portion of their sales volumes, those revenues could support healthy rebounds in their stock prices in time.