Novavax Is Not a Worthwhile Investment But Could Be a Good Trade
The biotechnology name is posting negative investor equity but there's an intriguing price target ahead.
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On Tuesday morning, Novavax NVAX released the firm's third quarter financial results. For the period ended September 30, Novavax posted a GAAP EPS of $-0.76 on revenue of $84.512 million. While these paltry numbers did beat consensus, the revenue print reflected year-over-year "growth" of -54.8%. To be fair, the year-ago period included grants of $164.922 million. Excluding grants, revenue driven by sales and royalties showed actual growth of 283%. Bet you didn't see that one coming. During the quarter, Novavax received authorization from the FDA in the U.S. and the European Commission for an updated COVID-19 vaccine for individuals aged 12 and older.
Operations
While revenue was understandably down 54.8%, total costs and operating expenses dropped 30% to $218.53 million. This left an operating income/loss of $-134.018 million, down from $-125.632 million (remember the grants). After accounting for interest, other income and expenses and taxes, net income/loss came to $-121.3 million, up from $-130.776 million. This works out to GAAP earnings per fully-diluted share of $-0.76, up from $-1.26 for the year-ago period. Are the numbers awful? Of course. Did corporate execution improve, especially given the fact that the quarter reported did not benefit from any grants at all? Again, of course.
Balance Sheet
The firm has not yet released a Form 10-Q for the third quarter. I am not that worried about it. I do not expect to see positive cash flows. The firm did, however, release select balance sheet data in the Form 8-K dated on Tuesday.
The firm has current assets of $1.104 billion including a cash position of $909.531 million (including marketable securities). The firm has convertible notes payable of $169.265 million and shareholder equity is negative at $-526.463 million, but that is better than $-716.927 million, which is what that number was at the end of 2023.
Full-Year Guidance
For the full fiscal year, Novavax now sees revenue of $650 million to $700 million, down from prior guidance of $700 million to $800 million and well below the $761 million or so that Wall Street had in mind. Product sales are now seen at $175 million to $225 million, down from prior guidance of $275 million to $375 million, while licensing and royalties are expected to bring in $475 million, up from $425 million. This guidance was issued after the firm had agreed to repay the U.K. Health Agency $123.8 million by November 30 to resolve a COVID-19 vaccine agreement that had been reached at the height of the pandemic.
My Thoughts
I see no reason to get caught up in this name. The balance sheet information tells you all you need to know. Investor equity is negative. That's what those shares are really worth. A new COVID vaccine? Outside of those with known health problems, when is the last time you heard of someone getting a COVID booster? It's been years for me. So, I guess I've decided that NVAX is not an investment, but is it a trade?
Readers will see here that support on Tuesday morning (so far) has been found at a precise 78.6% Fibonacci retracement of the May into June rally. We also find that NVAX has developed a falling-wedge pattern that we know is a pattern of bullish reversal and is close to closing.
What do I think about that? I think if the Tuesday lows are not retested during the regular session, that NVAX can be bought for a trade close to $8.50 with the intent of spitting those shares out when they reach the 200-day SMA, which is currently $9.90. If it works, we're talking about a 12% turnaround.
At the time of publication, Guilfoyle had no positions in any securities mentioned.
