Merck vs. Moderna: Which Vaccine Stock is a Better Investment?

Merck & Co., Inc. (MRK) operates as a healthcare company worldwide. It operates through two segments, Pharmaceutical and Animal Health segments. On the other hand, Moderna, Inc. (MRNA) develops therapeutics and vaccines based on messenger RNA to treat infectious diseases, immuno-oncology, rare diseases, cardiovascular diseases, and auto-immune diseases.

Companies with a COVID-19 vaccine or drug in their portfolio are expected to remain in focus this year and beyond as the virus is far from gone. Moreover, the recent recommendations of healthcare organizations for booster doses are expected to generate new revenue streams for vaccine stocks. The global coronavirus vaccine market is estimated to be valued at $ 38. billion in 2021 and grow at a CAGR of 56.1% during the period 2021-2028. MRK and MRNA have been major movers in the fight to contain the coronavirus, with their breakthrough developments.

MRNA has gained 145.8% over the past six months, while MRK has returned 7.8% over this period. Also, MRNA’s 211.9% gain year-to-date compares with MRK’s 1.6% return. In terms of the past year’s performance, MRNA is the clear winner with a 373.5% gain versus MRK’s 2.9%.

But which stock is a better buy now? Let’s find out.

Latest Developments

On October 1, Merck and Ridgeback Biotherapeutics announced that their investigational oral antiviral medicine molnupiravir (MK-4482, EIDD-2801) significantly reduced the risk of hospitalization or death at a planned interim analysis of Phase 3 MOVe-OUT trial in at-risk, non-hospitalized adult patients with mild-to-moderate COVID-19.

On September 30, MRK and Acceleron Pharma Inc. (XLRN), a biopharmaceutical company, announced that the companies have entered into a definitive agreement under which MRK, through a subsidiary, will acquire Acceleron. MRK expects this acquisition to complement and strengthen its product portfolio.

On September 24, MRNA announced its supply agreement with the government of Peru for 20 million doses of MRNA’s COVID-19 vaccine. "We are committed to making our vaccine available around the world as we seek to address the pandemic with our COVID-19 vaccine," said Corinne Le Goff, Pharm.D., M.B.A, Chief Commercial Officer of Moderna.

Recent Financials

MRNA’s total revenues increased 6,398.5% year-over-year to $4.35 billion in its fiscal second quarter that ended June 30. Its income from operations stood at $3.06 billion, up 2,609.8% from the same period last year. Its net income improved 2,476.1% from its year-ago value to $2.78 billion. The company’s EPS increased 2,183.9% year-over-year to $6.46.

For the second quarter that ended June, MRK’s sales increased 22% year-over-year to $11.40 billion. Sales from the pharmaceuticals segment grew 22% from its year-ago value to $9.98 billion, while its non-GAAP net income improved 28% year-over-year to $3.32 billion. The company’s non-GAAP EPS also improved 28% year-over-year to $1.31.

Expected Financial Performance

MRNA’s revenues grew at a CAGR of 231.7% over the past three years. Analysts expect MRNA’s revenue to increase 8,247.3% in the current quarter, 1,193.3% in the next quarter, and is expected to decline 1.6% in the next year. The company’s EPS is expected to grow 1,700% in the current quarter, 1,669.6% in the next quarter, and to decline 7.5% in the next year. Furthermore, its EPS is expected to grow at a 16.8% rate per annum over the next five years.

In comparison, MRK’s revenues grew at a CAGR of 6.9% over the past three years. Analysts expect its revenue to increase 0.3% in the current quarter, 4.6% in the next quarter, and 9.2% in the next year. The company’s EPS is expected to grow 12.4% in the current quarter, 62.2% in the next quarter, and 17.3% in the next year. Moreover, MRK’s EPS is expected to grow 12.7% per annum over the next five years.

Profitability

MRK is more profitable with a gross profit margin of 72.31%, compared to MRNA’s 59.02%. Also, MRK’s trailing-12-months revenue is 7.18 times what MRNA generates.

However, MRNA’s ROE, ROA, and ROTC of 72.43%, 24.30%, and 45.77% compare with MRK’s 20.40%, 11.47%, and 17.55%, respectively.

Valuation

In terms of forward EV/Sales, MRNA is currently trading at 6.41x, 26.4% higher than MRK, which is currently trading at 4.72x. Also, MRNA’s trailing-12-months Price/Sales ratio of 18.49 is 77.4% higher than MRK’s 4.17.

Thus, MRK is relatively affordable here.

POWR Ratings

MRK has an overall grade of B, which equates to a Buy rating in our proprietary POWR Ratings system. On the other hand, MRNA has an overall grade of C, which translates to a Neutral rating. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

MRK has a grade of B for Stability, owing to its beta of 0.42. In contrast, MRNA has a grade of F for Stability, due to a beta of 1.49.

Both the stocks have a Quality grade of B, owing to their higher-than-industry profit margins. MRK’s EBITDA margin of 39.51% is 593.3% higher than the industry average of 5.70%. On the other hand, MRNA’s EBITDA margin of 55.82% is 879.5% higher than the industry average.

Of the 212 stocks in the Medical – Pharmaceuticals industry, MRK is ranked #19. Alternatively, among the 502 stocks in the Biotech industry, MRNA is ranked #37.

Beyond what we’ve stated above, we have also rated the stocks for Sentiment, Momentum, Value, and Growth. Click here to view all of MRK’s ratings. Also, get all of MRNA’s ratings here.

Click here to checkout our Healthcare Sector Report for 2021

The Winner

Both MRK and MRNA are expected to benefit from the continued need to fight against the virus. Relatively lower valuation and more stability make MRK a better choice here.

Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Medical – Pharmaceuticals industry here. Also, click here to view the top-rated stocks in the Biotech industry.

MRK shares were trading at $80.53 per share on Wednesday afternoon, down $1.07 (-1.31%). Year-to-date, MRK has gained 1.06%, versus a 17.06% rise in the benchmark S&P 500 index during the same period.

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.

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