A potentially very lucrative arrangement with a peer doesn’t necessarily make the company a buy.
Novavax (NVAX -4.30%) took a turn in the investor spotlight in early May, when the vaccine specialist announced — on the same day it unveiled its first-quarter results — a collaboration deal with Sanofi.
Understandably, Novavax’s share price leaped on news of the potentially lucrative deal with the global pharmaceutical sector company. This has left the stock fairly valued, in the opinion of one analyst tracking the company. He’s got a point, I believe.
Price target doubled, but…
TD Cowen’s Brendan Smith doubled his price target on Novavax following those two pieces of news. He now feels it’s worth $10 per share, exactly double his previous fair value estimation.
Such a monster lift is usually accompanied by a buy recommendation, but not in this case; Smith maintained his hold rating on the stock. In fact, the new price target implies a 21% downside from the current price.
Management’s trumpeting of the Sanofi deal overshadowed the disappointing numbers in the Q1 earnings report. Novavax missed the consensus analyst estimates on both the top and bottom lines, although its $94 million in Q1 revenue and $1.05 per share net loss were actually improvements over the first-quarter 2023 figures.
In his latest Novavax note, Smith expressed concern about the company’s recent performance. He pointed to lowered sales guidance for the full year 2024, which to him “reaffirms that the COVID market remains uncertain.”
A big name in COVID-19 care
Much of Novavax’s name recognition comes from the thick of the COVID-19 pandemic, as the company developed one of only four vaccines for the disease that got emergency use authorization from the U.S. Food and Drug Administration.
That’s a tough act to follow, and Novavax hasn’t yet proven it can build out a long-term, sustainable business. So, like Smith, I can envision more downside than upside for the stock in the short- to midterm future; with that, I think I’d even be more bearish than Smith and consider Novavax stock a sell.
Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
