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Investment Thesis
With Politico reporting on possible US FDA approval of NVX-CoV2373 on July 13, 2022, this is a friendly reminder for those looking to cash in on Novavax, Inc (NASDAQ:NVAX) stock. The time is finally nigh, though admittedly much slower than expected given that NVAX had been up for approval by US regulators since January 31, 2022. The approval process for its vaccine has been surprisingly delayed, given the of fast-track approvals granted to its rivals, such as Pfizer ( PFE ) and Moderna ( MRNA ), for the younger age group. However, we are not here to speculate about the reasons of the US FDA, as there are more important problems here. While we continue to believe in the efficacy of the NVAX vaccine and its traditional protein subunit technology, its management has proven to be slower than expected in getting any of its products approved by the US FDA. Additionally, there is no further news from its global supply chain/manufacturing plants, possibly due to the “demand collapse” for most of the COVID-19 vaccines, with PFE already feeling the heat. As the NVAX bulls keep saying, some could hold out for the more traditional vaccine and/or its combined COVID/Flu vaccine. However, for now we are less optimistic. We believe that these vaccines need to be approved first, before we can gather real-life data and global demand, before we can justify the current premium for NVAX.
Still, minimal deliveries of Novavax vaccine
Ministry of External Affairs in India So far, NVAX has shipped only 157.01 million vaccines from the facilities of its manufacturing partner in India, the Serum Institute of India. Although the US government had also ordered 3.2 million doses contingent on US FDA approval, these numbers are well below the original APA of 110 million doses as part of its $1.8 billion funding commitment. Now this is somewhat disappointing since a similar “demand disaster” was reported in the EU with only 90.4 million doses of NVX-CoV2373 out of 400 million APAs. With the US FDA requesting Omicron-specific vaccines, NVAX will be delayed again, with its clinical trials/results not due until the end of 3Q22. Meanwhile, Moderna had published satisfactory results for Omicron’s specialty vaccines by June 22, 2022, with Pfizer also announcing its findings on June 25, 2022. So given the historic speed of approval by the US FDA and manufacturing capacity, we expect Pfizer and Moderna to win the upcoming race as well, possibly leaving NVAX in the dust. As for the combined COVID-19/Flu vaccine, NVAX can potentially hold its own on the global stage, as Pfizer and Moderna’s pipelines are either still in preclinical or Phase 1. However, it also remains to be seen when NanoFlu to be approved, despite excellent clinical trial results since March 2020 and the appointment of a new NanoFlu-specific leadership team in October 2020. Disappointing, to say the least, given the $6.59 billion annual global demand for flu vaccines in 2021 .
NVAX underperforms in the Show-Me-The-Money game
S&P Capital IQ NVAX has underperformed its financials in recent quarters, despite previous publicity. However, it’s also important to note that the company ultimately reported positive net earnings of $0.2 billion on revenue of $1.53 billion in 1Q22, indicating a net income margin of 13% then. Not too bad to begin with, really. However, it is also apparent that NVAX has yet to generate positive Free Cash Flow (FCF), with -$0.11 billion FCF and -15% FCF margins in the last quarter, a vital point for its future expansion pipeline research and R&D efforts. As a result, the company could potentially rely on more debt and equity dilution for its future capital, as highlighted in our previous analysis.
S&P Capital IQ Since our previous analysis, NVAX’s projected revenue and net income have fortunately remained broadly in line, with a similar decline through FY2024. Analysts will also be closely watching its FQ2’22 performance on August 4, 2022, with consensus estimates for revenue of $1.02 billion and EPS of $5.54, indicating an improvement of 241.2% and 85.7% year-over-year. Given NVAX’s deliveries of around 58 million doses in FQ2’22, there may be potential for inventory recovery after the FQ2’22 earnings call, as it represents a 41.4% QoQ delivery increase. We’ll see. In the meantime, we encourage you to read our previous article on NVAX, which should help you better understand its position and market opportunities.
Novavax: Sell on the US FDA rally and say goodbye Novavax: Avoid this cancer at all costs
So, NVAX Stock A Buy, Sell or Hold?
NVAX 5Y EV/Earnings and P/E Estimates
S&P Capital IQ NVAX is currently trading at an EV/NTM earnings of 1.09x and an NTM P/E of 3.64x, lower than the 5Y averages of 24.95x and 5.06x, respectively. However, who are we kidding? The stock’s valuation has never really been, as it moves mostly on investor sentiment and news. As of July 12, 2022, the stock is trading at $69.76, down 74.8% from its 52-week high of $277.8, albeit at a 200% premium from its 52-week low of $34.88. The stock is also up 33.36% since our previous analysis, from $52.31 on June 8, 2022 to $69.76 on July 12, 2022, making all NVAX investors happy, especially those looking for a higher exit point.
NVAX 5Y share price
Looking for Alpha Therefore, given the several reasons above, we are not convinced on the attractive buy rating of the consensus estimates with a price target of $126.50 for an upside of 81.34%. We’ll be lucky to see the stock hit $100 in the coming weeks (after US FDA approval and the FQ2’22 earnings call), providing a comfortable cushion for those looking to cash out. As for the bulls, I love your enthusiasm, really, as I was a believer too before management let down. It might be interesting to see how NVAX performs in FQ2’22, as we might be feeling a bit optimistic again. Good luck to everyone! However, we still reiterate our sell rating on NVAX stock, following the upcoming rally following US FDA approval.
