Company background

Moderna, Inc is an American pharmaceutical and biotechnology company based in Cambridge, Massachusetts. It focuses on vaccine technologies based on messenger RNA (mRNA). Moderna’s vaccine platform inserts synthetic nucleoside-modified messenger RNA (modRNA) into human cells using a coating of lipid nanoparticles. This mRNA then reprograms the cells to prompt immune responses.

The company is a pioneer in the mRNA space, as it believes that the potential implications of using mRNA as a drug are significant and far-reaching and could meaningfully improve how medicines are discovered, developed and manufactured.

It is a known fact that, every cell in the body uses mRNA to provide real-time instructions to make the proteins necessary to drive all aspects of biology, including in human health and disease. Thus, Moderna, Inc. is trying to explore that further and develop a new class of medicines made of messenger RNA.

Since its founding back in 2010, Moderna has worked tirelessly in building the industry’s leading mRNA technology platform, the infrastructure to accelerate drug discovery and early development, a rapidly expanding pipeline, and a world-class team.

Current position – Financial Performance & Future Growth Prospects

Moderna was one of the first pharmaceutical and biotech companies back in 2020 which announced that it was actively working on developing an mRNA vaccine for COVID-19. The company did manage to come up with a vaccine as a final product.

The Moderna COVID-19 vaccine, codenamed mRNA-1273, is a COVID-19 vaccine developed by Moderna, the United States National Institute of Allergy and Infectious Diseases (NIAID) and the Biomedical Advanced Research and Development Authority (BARDA). It is used in people aged 18 years and older to provide protection against infection by the SARS-CoV-2 virus, which causes COVID-19. It is designed to be administered as two 0.5 mL doses given by intramuscular injection at an interval of four weeks apart. It is an RNA vaccine composed of nucleoside-modified mRNA (modRNA) encoding a spike protein of SARS-CoV-2, which is encapsulated in lipid nanoparticles. The Moderna COVID-19 vaccine is authorized for use at some level in 45 countries including the United States, Canada, the European Union, the United Kingdom, Israel, and Singapore.

What’s more important is that Moderna is growing at a rapid pace as the company has several early to mid-stage pipeline candidates targeting multiple conditions including cancer and cardiovascular that are expected to come to the market in the near future.

Moderna Inc., currently has 24 mRNA investigational candidates with 13 candidates in clinical development stage. Its key candidates in the mRNA pipeline include mRNA-1647, mRNA-4157 and AZD8601. These candidates are either in late or mid-stage development – mRNA-1647 and mRNA-4157 are being evaluated as vaccines for cytomegalovirus and cancer, respectively, and AZD8601 is a candidate for myocardial ischemia.

Moderna’s innovative mRNA technology has allowed it to secure multiple collaborations with some of the largest pharma/biotech companies like AstraZeneca, Merck, and Vertex Pharmaceuticals. Last but not least, Moderna is also heavily supported from the US government through some strategic alliances with government-sponsored organizations and private foundations.

One could argue, that despite being 11 years old, the company is still in its early stages of development as the COVID-19 vaccine is the only commercial product that Moderna has at the moment. However, this could be viewed as a huge growth opportunity for investors willing to accept the relatively higher risk-profile that Moderna brings both as a company and as a stock. In the pharmaceutical and biotech sector it is not all about the earnings per share or revenue that a company generates, but it is more about the FDA approvals, patents and generic drug protection that a company gets. Thus, with 24 development programs, 14 out of which already in clinical studies, in areas like Infectious Diseases, Immuno-Oncology, Rare Diseases, Cardiovascular Diseases, Autoimmune Diseases, Moderna could be in for a growth super cycle going forward.

Looking at the company’s financial performance we can see that Moderna reported earnings of $2.84 per share for Q1 of 2021, which came in better than the consensus estimate of $2.00. This was a significant improvement for the company’s profitability profile as back in Q1, 2020 the company incurred a loss of 35 cents per share. The main driver of that huge profitability increase was of course the COVID-19 vaccine, mRNA – 1273. The most recently reported quarter was also the first profitable quarter in the company’s history.

From a Revenue standpoint the company delivered $1.94 billion for Q1, 2021, which was slightly below the consensus estimate of $1.95 billion. Just as a reference point it is important to point out that in the year-ago quarter, revenues were only $8 million.

If we dive a little bit deeper into the numbers of the most recently reported quarter, we could see some notable improvements and increases for the company particularly on the revenue front. For example, product sales, entirely from the COVID-19 vaccine, were $1.73 billion during the quarter.

Grant revenues were also significantly higher at $194 million compared to the $4 million grant revenue reported in Q1, 2020. Please note that the company has received a funding commitment of up to $955 million from BARDA to develop its coronavirus vaccine candidate in 2021.

Collaboration revenues were $10 million, compared with $4 million in the year-ago quarter.

Moderna also saw a huge increase in its selling, general and administrative expenses coming in at $77 million compared with only $24 million in the year-ago quarter. However, such an expense increase could be expected when a company of that size enters into the COVID-19 vaccine race and tries to be competitive with some of the other large pharmaceutical and biotech behemoths in the space. Every fast-growing enterprise faces the serious task of managing its expense profile during the expansion period as a poor management in that part of the business could practically eat away a large portion of the profits that the company generates. It remains to be seen how well will the senior management at Moderna handle the expanding operating and fixed costs in the long run.

The R&D budget and activities are basically the lifeline for a company like Moderna, thus it is great to see the Research & development expenses moving up to $401 million in Q1, 2021 compared with only $115 million in the year-ago period. Again, most of the R&D spending went into the increased higher clinical development costs for mRNA-1273.

What’s important to point out is that the company seems to be managing its financial position quite well, as it ended the quarter with $8.2 billion in cash and cash equivalents, compared with $5.25 billion in Q4, 2020.

Furthermore, we saw Moderna delivering a very optimistic and positive outlook for the rest of the year as it raised its guidance for product sales in 2021. The company anticipates product sales to be $19.2 billion in 2021, compared with the previous guidance of $18.4 billion.

In its Q1 update in early May, Moderna announced that it has secured advanced purchase agreements for its COVID-19 vaccine totaling more than $19 billion. Since then, the company has picked up additional supply deals, as the Moderna’s mRNA vaccine still remains 1 of 3 FDA approved and authorized vaccines in the US.

The company also talked about the fact that as future virus mutations and strains will probably cause the need for annual vaccinations, Moderna expects to see strong revenue and earnings growth in the coming years.

From a valuation perspective, even with its most recent upward price breakout the stock is by no means expensive or overvalued, as it is trading at a Forward P/E of only 9, which is significantly lower than the industry average.

Dow Theory 2.0 – Correlation Confirmation

Dow Experts’ approach has always been based on identifying the next great movement in the market by analyzing both the fundamentals and technicals as well as other all-important factors that have an impact on the price. Furthermore, our cross-correlation analysis allows us to act in the market only if the movement on the chart is confirmed by the other key ETFs and indices that we use in our investing philosophy.

As you know, the Dow Theory 2.0 includes more than 30 correlations between different ETFs and stock market indices, which give us a chance to confirm whether a certain movement in the market is worth taking action for.

Therefore, in order to determine whether MRNA is a good stock to buy with respect to the current levels of the price we have decided to analyze the performance of both the SPY (Select Sector SPDR S&P 500 ETF Trust) and the XLV (Health care Select Sector SPDR Fund). The two ETFs share a very strong and positive 81% 10-year correlation, which would allow us to confirm some of the signals that we are getting with a great deal of certainty. The SPY is the largest, most liquid and most commonly traded ETF out there that invests in the 500 most well-capitalized companies in the US, and by doing so it mimics the performance of the S&P 500 benchmark index. The MRNA stock is not part of the XLV Health care ETF, as it is included only in the XBI SPDR S&P Biotech ETF and is also the #1 stock there by percentage weight. The XBI and SPY though share only 61% 10-year positive correlation, which will not be enough for us to reach a conclusive verdict on MRNA’s future price trends. The XBI and XLV on the other hand share a much stronger and positive 10-year correlation of 71%, while at the same time the XLV shares an 81% positive 10-year correlation with the SPY. This means that a signal on the SPY chart, has an 81% chance of occurring on the XLV chart, which if it materializes would mean that the chance of that same pattern occurring in the XBI ETF would be over 71%. By applying our cross-sector correlation matrix we significantly increase the probability of success of our analyses.

By looking at the daily chart, one could see similar movements on the SPY, XLV and the MRNA charts from throughout the last 4-6 weeks. Due to the coronavirus outbreak back in 2020, the SPY made a 35% correction, dropping from its highs at $339 towards the key support at $221 where it found lots of buying interest, which ultimately led to one of the strongest rebounds in the history of the stock market as the SPY has appreciated with 62% in 5 months and 91% in 14 months. There has been a lot of speculation and discussion recently as to whether or not the market has entered into a post COVID bubble of inflated asset prices. However, as we know the technical charts usually reflect the overall fundamental picture and the investors’ sentiment in the market. At the moment, the remarkable and relentless fiscal and monetary support provided by the government and the Fed is acting as a safe net for this highly overbought and overvalued market. The support will continue, but how much longer could the market continue to grow in this environment. We believe that the first major correction will take place as soon as the Federal Reserve mentions the word “tapering” with respect to its quantitative easing program. We all know that the monetary policy of the future will be tighter than the monetary policy of today, it’s just that no one knows exactly when the Fed will announce that it is planning on initiating the tapering process. The most recent NFP report came in significantly below economists’ expectations, which means that the Fed will not see any further pressure of raising rates in the coming month.

The XLV has also experienced a major recovery after the COVID-19 related lows from March, 2020. The ETF bottomed around the $90 mark last year and hasn’t looked back ever since. Throughout 2021 so far, the XLV has continued to move steadily higher, despite the sideways price action in the period February-March.

What we observed in early April was quite interesting as we got a strong breakout on the SPY daily chart that occurred on April 1st, which was then followed by the XLV’s upward breakout from the 119-110 price range that the ETF traded within. However, we observed a substantial 10-day delay for the follow-through movement to occur in XLV, as the Health care ETF broke its key resistance on April 15th, well after the SPY’s breakout. Well, why is that important you might ask.. because we might be looking at the same scenario playing out at the moment. The SPY’s daily chart is showing a clear upward breakout from the ascending triangle formation, while the XLV is still trading within its ascending triangle and has just rebounded from the upward sloping diagonal support. We believe that the XLV will be moving higher in the coming sessions, and that a potential upward break of the horizontal resistance at $125 is highly likely (81% probability). This will open up the doors for the XLV to push higher towards the $130-135 area. At the same time, when you look at the daily chart of the XBI ETF, you would see that after the substantial price decline since the beginning of the year, the price has now formed a double-bottom “W” bullish reversal pattern, which could be very well signaling that further upside could be expected ahead. If the XLV does break out of its current ascending triangle, there will be a 71% probability that the XBI ETF will also break higher.

Lastly, we should also point out that even though that MRNA is not part of the XLV ETF the stock has seen an absolutely identical price action on the daily chart throughout the last 6-8 weeks. What’s more important even is that MRNA’s stock has already broken above its ascending triangle resistance, which is another great signal for both MRNA’s stock as well as the whole Health Care and Biotech space.

We have to also point out that the recent major global pandemic, has shown individuals, companies and governments how important the Health Care and Biotech industries are for the future well-being of humanity. This favorable social image has also improved the overall investment interest in the space.

In conclusion, the Dow Theory 2.0 confirms that there is a lot of bullish momentum in the market at the moment. Furthermore, it is clear that MRNA is one of the most-attractive, investor-favorite biotech stocks and when looking at the triple cross-correlation that we applied between the SPY, XLV and XBI it is clear that both of them are headed higher. Thus, we are strongly bullish on MRNA not only in the coming weeks, but also in the long run as we believe that the company is very well positioned to produce remarkable stock gains for its investors as a result of the improving and growing business volumes, clients and products around the company.

Technical Analysis – MRNA

By looking at the daily chart, we can see the strong bullish rally that has been in place in the last 18 months taking the price from the lows of around $13 to the $206 highs in the beginning of June, 2021. This represents an astonishing 1,485% gain for the stock in a year and a half. However, the road to the above-mentioned all-time highs was not easy as it was filled with many different hurdles that the bulls had to overcome in order to keep pushing the price higher. There were few 10-20% corrective movements that took place during this strong uptrend, but the uptrend remained intact on all occasions. The stock has continued to attract a lot of investors’ attention as it remains one of the leaders in the COVID-19 vaccine development space. Moderna is not only one of the 3 FDA approved COVID-19 vaccine manufacturers in the US but it is also a true pioneer in the mRNA medicine development space. This in turn has turned the stock into a go-to choice for both small retail and large institutional growth oriented investors looking to add some health care and biotech exposure to their portfolios.

The stock is currently sitting at $206 per share, which is also the all-time high for MRNA. Now, we usually do not like chasing stocks that are sitting at their all-time highs, but MRNA is a different story. We saw the stock finding a lot of buying interest around the $150 mark in mid-May, which was easily anticipated as there were multiple strong supports lying around that level, including the diagonal upward sloping trendline support, the 50 DMA, the 100 DMA as well as a minor horizontal support. This was a tremendous opportunity for buyers to come in and open up their Long positions with an extremely favorable risk-reward ratio. The technical test of the above-mentioned support zone coincided perfectly with Moderna’s Q1 Earnings report announcement, where we saw the company beating the consensus estimates in a decisive manner. This was a very powerful combination of bullish indications that ended up pushing the stock sharply higher through the rest of May. However, the most important thing for MRNA from a technical perspective occurred on the daily chart in the first couple trading sessions of June, when the stock staged a clear breakout from its ascending triangle resistance at the $190 mark. This in turn showed that there is a lot of upside potential in the stock.

As you know and as we have mentioned many times before, panicking has never made anyone any money, nor has over-excitement. While we understand that MRNA’s price action is strongly bullish we would advise investors to wait for a small pullback and a re-test of the $190 former resistance, now support. What’s really interesting is that despite the humoungous price appreciation of MRNA, if you look at the future growth, earnings and revenue expectations the stock is actually cheap and undervalued even at the $206 all-time highs that it is trading at the moment.

Investors should see the recent price action as a confirmation for the long-term growth story that Moderna offers. In our view this is definitely an opportunity that every growth oriented investor should look at, because we truly believe that Moderna’s significance and importance as a biotech mRNA medicine developer and provider will only continue to increase in the coming years. Could the stock go lower? Of course it could.. any stock could go lower, but that is not the point. As a growth-oriented investor you have to be ready to take on some pain (stock price declines) from time to time when you are chasing after the high double-digit annual growth. Basically, this is the price you have to pay for owning these names. However, with the proper risk-management and portfolio positioning, this short-term speed bump could prove to be a phenomenal opportunity for generating outstanding profits in the months ahead.

Furthermore, we believe that the new $1.9 trillion stimulus package accepted in the US, will inject a lot of liquidity into the market, which will be a great short-term positive for the equity market. We expect most of the big tech names as well as other market favorites like MRNA to restore their favorable image among traders and investors in the coming weeks, thus we anticipate that the XLK, XLV will be some of the best performing US sector ETFs in June. However, it is important to note that the loose monetary policy with artificially low interest rates and constant money printing is a net negative for the US dollar in the short term. Thus, we are also bullish on Emerging markets, in the next 2-4 months as most of the emerging market economies have US dollar denominated debts. If the US dollar continues to weaken that would make it easier for some of these emerging economies to repay their debts. Why is that important for Moderna? Well, this trend might lead to a pick up in the international sales segment for the company as the company’s products would become cheaper on a relative currency basis. However, as we continue to see the US economy recovering and we move pass the global pandemic the Federal reserve will be forced to raise the benchmark interest rates in the US, which will end up boosting the dollar and could result in an Emerging market debt crisis in 6-12 months.

We believe that the stock market in the US currently holds a lot of intrinsic risks – COVID-19 mutations and resurgence of new cases, Biden’s struggle to pass on the funding bills that he promised that he will deliver, the state and pace of the economic recovery, the post-Brexit economic reality for the UK and EU, as well as the serious pick up in commodity and real estate inflation in the US. These factors might lead to a sideways and choppy price action in the coming months. However, our analysis shows that the winners would most likely continue to win in the stock market.

Moderna, has definitely been one of the biggest winners in terms of stock price appreciation throughout the last 12 months, thus we are strongly bullish on MRNA’s stock in both the short and long term. Additionally, we are seeing MRNA as a great way of playing the health care and medicine development boom that is currently happening without having to pay any crazy P/E multiples.

The most recent price breakout should be treated as a great confirmation signal for buying this strong performing stock and hold it for the long-term. Moreover, some of the technical indicators that we are monitoring closely on a daily basis (50 DMA, 100 DMA, Bollinger Bands, RSI etc.) are clearly supporting the recent upward breaks and are now steadily pushing higher, thus signaling that the uptrend is likely to continue going forward. In addition to that, it is important to note the fact that the XLV and the Health care and Biotech sectors as a whole would continue to attract a lot of the investors’ attention moving forward, as people are now much more conscious about the fact that there are indeed a lot of viruses and bacteria out there that could have serious negative health impact on their lives. Let’s not forget that consumers are sitting on record levels of savings and are eager to spend, and staying safe and being healthy would be areas that they would be definitely most willing to spend. This makes us optimistic for the future performance of MRNA as a meaningful part of the XBI ETF structure. Our analysis shows that as a result of the great leadership by the senior management of the company and the phenomenal fundamental positioning of MRNA with the large number of growth-related initiatives, new vaccine candidates and ongoing clinical studies the stock will be able to hold its ground better than some of the other stocks in that sector in the event of a correction, and it would also significantly outperform the broader market in an uptrend environment.

Acknowledging the fact that the stock is currently trading at all-time highs after a strong breakout, we would like to point out that buying at these levels would be suitable more for risk-oriented and that more risk-averse investors, should wait for the stock to retrace down to the prior resistance around $190, which is now expected to act as a support. Thus, we are currently looking at the $190-200 range as a great accumulation zone for the stock. Our take profit levels in the coming months are going to be $255 and $285 respectively.

Sincerely,

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