May 20, 2020

Breakingviews: Moderna puts stock-sale opportunism to test

by Breakingviews.

Moderna is putting stock-sale opportunism to the test. The biotech developing a potential Covid-19 vaccine this week joined a rapidly growing list of companies selling more shares to investors. It makes sense, given the market rebound and some issuers’ need for cash. But the rush to sell by more speculative companies like Moderna should give buyers pause.

The pandemic has had a severe effect on the economy, but markets have disconnected. The S&P 500 Index has jumped by a third since its low towards the end of March. Companies that need cash, those worried about delayed recovery and firms whose stocks have done well are increasingly deciding to sell stock.

Those needing to shore up troubled balance sheets, like airlines and cruise companies, tended to be the first out of the gate last month. But in recent weeks an increasing number of firms have tapped the secondary equity market as matter of preference. Medical conglomerate Danaher, for example, sold $1.5 billion of new shares earlier this month – and the same again in convertible bonds – in part to sock some money away for future deals.

That’s partly why PNC Financial Services offloaded its stake in BlackRock last week, raising $14 billion in the open market. It also gives the bank an even bigger capital buffer in case loan losses are worse than expected.

As a result, so far this month there have been some $43 billion of so-called follow-on stock offerings, according to Refinitiv, compared to $13 billion in March.

Less sturdy-looking companies are now following suit. Carvana, a money-losing online used-car seller, is selling shares for the second time in two months. With the stock doubling since early April and customers hurting, it’s a good time to bolster its defenses.

The same goes for Moderna, which on Monday said it would sell over $1 billion of stock hours after announcing interim results on an early clinical trial on its vaccine. The $27 billion firm has yet to have a drug approved, and there are still questions over its technology’s safety and efficacy. It’s also burning cash. But its shares have ballooned fourfold since the start of the year on coronavirus excitement – and were up 20% yesterday alone.

These could all pay off for companies and investors alike. But with the damage from the pandemic still accumulating, the bets are getting riskier.

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