Restricted Booster Access or Not, BioNTech Stock Is Way Overvalued, Says J.P. Morgan

After a marathon session to determine whether BioNTech (BNTX) and partner Pfizer’s (PFE) Covid-19 booster shot of Comirnaty (BNT162b2) was deserving of approval, the FDA AdCom’s decision was based on Read More... The post Restricted Booster Access or Not, BioNTech Stock Is Way Overvalued, Says J.P. Morgan appeared first on TipRanks Financial Blog.

Restricted Booster Access or Not, BioNTech Stock Is Way Overvalued, Says J.P. Morgan

After a marathon session to determine whether BioNTech () and partner Pfizer’s () Covid-19 booster shot of Comirnaty (BNT162b2) was deserving of approval, the FDA AdCom’s decision was based on a deviation from the intended purpose.

The panel concluded that on the original voting question whether all individuals age 16+ should be given a booster shot, there were uncertainties on the safety front (including younger individuals being at risk of myocarditis) and a risk/benefit still unknown for the populace at large at this point in the pandemic. As such, the panel voted 16-2 against broad booster approval.

However, on the revised voting question concerning a booster dose for high risk and elderly (65+) individuals only, the panel voted unanimously in favor – 18 to 0.

“We feel this should have been the initial ask all along,” commented J.P. Morgan’s Cory Kasimov. So, where does this leave us now, the analyst asked rhetorically before providing a casually disappointed answer. “Probably about where we thought prior to this 8+ hour session.”

Kasimov thinks it won’t be long before a booster shot for the rest of the population gets a “roll-out,” anticipating it to come over the coming months. Additional insights on timing/details should be provided at the upcoming CDC ACIP meeting this week (Sept. 22-23).

Either way, restricted booster access or not, purely from an investing perspective, BioNTech stock has already provided shareholders with a bountiful share haul in 2021 (up by a huge 320%), preventing Kasimov from recommending investors hop on board right now.

“Bigger picture,” the 5-star analyst summed up, “Our model already contemplates eventual (relatively) widespread use of boosters, but we still believe BNTX (and MRNA) shares remain detached from fundamental valuation metrics and continue to trade primarily on momentum/COVID-19 headlines.”

All in all, then, there’s no change to Kasimov’s Neutral (i.e., Hold) rating or $153 price target, suggesting shares have a steep 57% drop from current levels to not look forward to. (To watch Kasimov’s track record, )

To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.

Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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Cummins Stock: Patience Required for Investors

Cummins Inc. (CMI), is an industrial giant with a strong competitive advantage. The company designs, manufactures, distributes, and services diesel and natural gas engines, electric and hybrid powertrains, and related Read More... The post Cummins Stock: Patience Required for Investors appeared first on TipRanks Financial Blog.

Cummins Stock: Patience Required for Investors

Cummins Inc. (CMI), is an industrial giant with a strong competitive advantage.

The company designs, manufactures, distributes, and services diesel and natural gas engines, electric and hybrid powertrains, and related components worldwide.

It operates through five segments: Engine, Distribution, Components, Power Systems, and New Power.

Cummins is trading at a low forward multiple, but we remain neutral in the short-term because we believe we may be able to get a better entry point. (See Cummins stock charts on TipRanks)

Measuring Its Competitive Advantage

We can measure Cummins’ competitive advantage by comparing its earnings power value to the value of reproducing the business. Earnings power value is measured as adjusted EBIT after tax, divided by the weighted average cost of capital, and reproduction value can be measured using total asset value. If earnings power value is higher than reproduction value, then a company is considered to have a competitive advantage.

Cummins’ average EBIT margin over the past five years was 10.4%. Using its revenue for the last 12 months, its adjusted EBIT is as follows:

$23.2 billion x 0.104 = $2.41 billion

Using a marginal tax rate of 22%, the after tax adjusted EBIT is $1.88 billion.

Cummins’ weighted average cost of capital is 6.8%. The earnings power value is $27.65 billion ($1.88 billion divided by 0.068).

Finally, its total asset value is $22.61 billion. As a result, Cummins has a competitive advantage because its earnings power value is greater than the reproduction value of the business.

Growth Catalysts, Risks

Cummins is currently trading at 15.3 times earnings and approximately 11.5 times forward earnings.

Since the company is cyclical, it’s more sensitive to business cycles. As a result, its P/E ratio tends to mostly hover between 10 to 20. However, Cummins does generate a lot of free cash flow which it regularly uses for dividends and buybacks.

The company’s share count continues to decrease every year as a result of the buybacks. This means that earnings per share will increase even if earnings stay flat. The increased EPS leads to a higher share price even if the P/E ratio stays in the same historical range.

In fact, Cummins’ EPS remained relatively flat from 2011 to 2016 despite seeing earnings decline over that same period. The stock mostly trended up during that time period nonetheless, although it did so with a lot of volatility. This demonstrates the impact that share buybacks can have.

Another growth catalyst for Cummins is its participation in developing new technology that uses green energy. In particular, the company is focusing on hydrogen energy. It’s already powering some trains in Europe with its fuel cells, in addition to other applications, ranging from grocery trucks to the first PEM electrolyzer in the United States.

However, like many manufacturers these days, Cummins is vulnerable to supply chain disruptions that lead to uncertainties about the company’s operations.

On top of that, increased costs of raw materials may impact the company’s margins if it’s not able to pass on the expense. In addition, there is always the cyclical risk that is associated with the industry.

Wall Street's Take

Turning to Wall Street, Cummins has a Moderate Buy consensus rating, based on four Buys and five Holds assigned in the past three months. The average Cummins price target of $278.67 implies 27.1% upside potential.

Final Thoughts

Cummins is undoubtedly an industry leader, with a measurable competitive advantage.

However, given the cyclical nature of the industry, a stock like Cummins produces the best returns after a cyclical sell-off. The stock has been on a downward trend for months now, and it’s possible that we are nearing a bottom.

Unless you can stomach a lot of volatility, it’s better to wait for momentum to pick up towards the upside before entering industrial stocks.

Disclosure: At the time of publication, Stock Bros Research did not have a position in any of the securities mentioned in this article.

​Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates, and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices or performance.

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