Moderna (MRNA +0.12%) is going to see its revenue nosedive this year, as demand for its COVID vaccine won't be nearly as strong as it was in the past few years. The company hopes that through its pipeline, however, it will be able to get its business back to generating growth, and that by 2027 its top line could hit up to $15 billion. But is the company being too aggressive, and is it setting expectations too high? Here's why investors should be cautious with the stock.
It won't be easy to get to $15 billion
In 2022, Moderna reported $19.3 billion in revenue. For it to achieve $15 billion in sales by 2027, as it is forecasting, it would require significant revenue growth within the next few years, because its business is slowing down and will need some new catalysts to bolster its operations.
NASDAQ: MRNA
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CEO Stéphane Bancel previously stated that the company would see a drastic "90% reduction in demand" for its COVID-19 vaccine, which remains the company's only approved product. At just $5 billion in COVID-related sales this year, unless there's a resurgence in cases in the future, in all likelihood that number will decline in the years ahead as people become less concerned with COVID. That means the vast majority of that $15 billion in revenue the healthcare company is forecasting would need to come from other products.
Moderna projects that its vaccine for the flu and the respiratory syncytial virus (RSV) will help make up for the shortfall. The problem, however, is that the company's flu vaccine hasn't been impressive, with mRNA-1010 showing mixed results in phase 3 trials, being effective against some strains of influenza but not others. Its RSV vaccine appears more promising, showing 84% effectiveness in preventing people 60 and older from developing two or more symptoms.
The challenge when it comes to RSV and the flu vaccine is that there is plenty of competition in these areas that could make it difficult to gain significant market share, even if Moderna's vaccines obtain approval. This includes big names such as Pfizer and GSK. While the RSV vaccine is promising, even an encouraging outlook from one analyst at Brookline Capital Markets, Leah Rush Cann, projects that while the vaccine might generate more than $2 billion in revenue, that might not come until 2030.
There's simply not enough in Moderna's near-term pipeline to convince me that the business will get anywhere near $15 billion by 2027. Even the low end of its forecast, $8 billion, could prove to be a long shot.
Investors should remain cautious with Moderna
The danger I see with Moderna's stock right now is that its valuation doesn't reflect a business that is heading for some big challenges ahead. In the past 12 months, the stock has declined by just 2%, which is better than how the S&P 500 has performed during that stretch -- it's down 3%. At more than three times revenue and eight times earnings, the stock may not look overpriced now, but as its financials inevitably worsen over the next few years its valuation will begin to look inflated.
There could be some tough times ahead for the business, and I would expect to see more bearishness in the stock price to reflect the risk in holding shares. While the stock appears stable right now, it may not be long before the valuation starts to crumble. Investors are better off steering clear of Moderna's stock until there's a clearer growth catalyst ahead for the business, one that is much more likely to drive strong revenue growth in the near future.
