Summary
- Novavax is scheduled to report its Q1 earnings on May 9. Unfortunately, the situation in the COVID-19 vaccines market has changed significantly. Now, we have an oversupply reality.
- Yet, Novavax still does not have its EUA from the US FDA. Also, we think its revenue visibility for FY22-23 is at risk.
- Therefore, we revise our rating on NVAX stock from Buy to Sell. Don't catch the falling knives from here.
Investment Thesis
Novavax, Inc. (NASDAQ:NVAX) is slated to report its Q1 earnings on May 9, ahead of the FDA review of its EUAfor its COVID-19 vaccine. As a result, Novavax investors have been waiting for a considerable amount of time. Unfortunately, much has changed over the last few months since its FQ4 earnings call.
In April, Moderna (MRNA) highlighted that the world now has an oversupply of COVID-19 vaccines. It also added that COVAX declined to take up additional options for more vaccines. In its Q1 earnings call, it also highlighted that its FY22 COVID-19 vaccines guidance could be impacted "if COVAX is unable to confirm demand aligned to their contracted volume in the 2022 calendar year."
Furthermore, Novavax's key manufacturing partner Serum Institute of India, reportedly suspended the production of COVID-19 vaccines back in December 2021. It highlighted that "supply outpaced demand amid global vaccine glut."
As a result, NVAX stock investors should not be surprised that its stock has collapsed 83% from its 2021 highs. We were cautiously optimistic in a previous update, as it had managed to gain several EUAs outside of the US. However, we think the tide has turned significantly for Novavax.
Despite the significant battering in its price, we think the time has come for Novavax investors to use any rally in NVAX stock to cut exposure partially or fully.
As a result, we revise our rating on NVAX stock from Buy to Sell.
NVAX Stock Deserves Its Lower Valuation Multiples
NVAX stock NTM revenue multiples(TIKR)
NVAX stock last traded at an NTM revenue multiple of 0.8x. It was well below the valuations of its two leading mRNA counterparts, Moderna and BioNTech (BNTX) stock. We think the bifurcation is justified, given the proven commercial success of its mRNA peers' vaccines. Furthermore, they have several pipelines developed on top of their proven mRNA platforms that should attract more confidence from biotech investors.
While Novavax keeps its investors on tenterhooks, Moderna and BioNTech have capitalized on its tardiness and dominated the COVID-19 vaccines market. So even though we recognized that Novavax's vaccine holds tremendous promise, it's simply too little too late.
Furthermore, the reality in The African Union and COVAX accentuated the waning demand for COVID-19 vaccines as they dealt with several challenges. Bloomberg reported that these "lower-income countries left behind in the global rollout are now grappling with a lack of funds, hesitancy, supply-chain obstacles, and other factors that are hampering distribution." As a result, "the vaccine landscape has changed drastically in recent months."
Notably, Pfizer (PFE) also declined to provide an update on FY23's visibility, despite reiterating its guidance for 2022. Therefore, we believe that the oversupply situation in 2022 would likely drag on further to 2023. As a result, Novavax's estimates for FY22-23 could have significant downside risks.
Novavax's Estimates Revised Downwards
Novavax revenue consensus estimates(S&P Capital IQ)
Hence, investors shouldn't be surprised that Novavax's revenue estimates have been revised downwards to reflect these uncertainties. The updated consensus estimates suggest the revenue bar that Novavax needs to clear in Q1 is $845.2M, down from March's estimates of $909.08M. However, the Street remains convinced that Novavax's revenue growth could gain momentum from Q2. Therefore, we believe that it's imperative for Novavax to reiterate or raise its previous FY22 guidance of $4.5B to assuage the market.
Nevertheless, we believe that the market remains uncertain over its guidance from FY23. As a result, we think the lack of visibility from its mRNA counterparts could continue to hamper NVAX stock momentum moving forward. Moreover, we believe it will be a tall order for management to communicate guidance beyond FY22, given the dynamics in the supply situation surrounding the COVID-19 vaccines.
Is NVAX Stock A Buy, Sell, Or Hold?
NVAX stock price chart(TradingView)
The bull trap in early 2021 proved prescient for investors who sold into that rally and took profit astutely. NVAX stock bagholders are now left with a mess as it broke below a critical support zone ($76) in April 2022. A recovery above that zone will be critical for NVAX stock to regain its support. Otherwise, it is increasingly likely that the stock is currently in free fall to an undetermined support level.
Therefore, we think the speculative run on NVAX stock has come to an abrupt end. Accordingly, we revise our rating on NVAX stock from Buy to Sellahead of its Q1 card.
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