March 12, 2021 7 min read
This story originally appeared on StockNews
Since the onset of the COVID-19 pandemic last year, investors have been closely watching healthcare stocks and are tracking regulatory approvals for vaccine candidates developed by the pharmaceutical companies. Johnson & Johnson (JNJ – Get Rating) and Moderna, Inc. (MRNA – Get Rating), two leading pharma players, have emerged as two of the winners in the race to develop effective coronavirus vaccines.
While neither of these companies had a first-mover advantage in receiving Emergency Use Authorization (EUA) for their vaccines from the U.S. FDA, and people nationwide are primarily being inoculated with a vaccine developed jointly by Pfizer (PFE) and BioNTech (BNTX), the late-stage clinical trial results of both JNJ and MRNA vaccines are highly efficacious.
Both the stocks generated decent returns over the past year. While JNJ returned 15.4% over this period, MRNA has surged 480.8%. However, in terms of their past month’s performance, JNJ is down 4% compared to MRNA’s 27.7% loss. But which of these stocks is a better pick now? Let’s find out.
Vaccine efficacy
J&J’s jab, the world’s first single-shot Covid-19 vaccine, developed by its Janssen division, uses adenovirus-26, a rare variant of the cold virus. Last month, the FDA issued the EUA based on the Phase 3 ENSEMBLE study that demonstrated the vaccine was 85% effective in preventing severe disease across all regions studied, and showed protection against COVID-19 related hospitalization and death, beginning 28 days after vaccination. JNJ has also submitted a European Conditional Marketing Authorization Application to the European Medicines Agency (EMA) as well as its filing for an Emergency Use Listing (EUL) with the World Health Organization.
The FDA authorized the emergency use of mRNA-1273, MRNA’s vaccine candidate, on December 18, 2020, based on a pivotal Phase 3 clinical study that indicated an efficacy rate of 94.1% on the original variant. MRNA initially said that the vaccine produced neutralizing titers against all key variants. However, on February 24, the company manufactured variant-specific vaccine candidates that are under Phase 1 clinical trials. In addition, MRNA is testing using a third dose of its existing vaccine in addition to using a booster shot that targets the South African variant.
While both the JNJ and MRNA vaccines use messenger RNA technology, there are certain key characteristics, apart from the efficiency, that makes the JNJ candidate superior to the latter. The MRNA vaccine needs to be administered twice, while J&J’s candidate requires only one dose. Also, MRNA requires extremely cold temperatures, which complicates storage and delivery. In comparison, J&J’s vaccine can be stored at normal refrigerated temperatures, which opens possibilities for delivery to remote areas and to developing countries.
Recent financial results
In the fourth quarter (ended December 31, 2020), JNJ recorded a top-line of $22.5 billion, increasing 8.3% year-over-year. Its adjusted operational sales growth was 7.3%. The pharmaceutical segment has been witnessing a solid recovery in revenue over the trailing two quarters and, consequently, worldwide sales improved 16.3% year-over-year in the last reported quarter. The company delivered adjusted EPS of $1.86, which was relatively stable compared to the year-ago value of $1.88.
MRNA’s total revenue in the fourth quarter (ended December 31, 2020) came in at $571 million compared to the year-ago value of $14 million. This was driven primarily by an increase in grant revenue and product sales. In fact, grant sales surged 9,648% year-over-year to $341.37 million due to the BARDA award to accelerate development of its COVID-19 vaccine. The company began to recognize revenue from its vaccine in December 2020 after the EUA by the FDA. However, MRNA reported a loss of $0.69 per share, compared to the prior-year loss of $0.37 per share.
Past and Expected Financial Performance
JNJ’s revenues and EPS grew at CAGRs of 2.6% and 127.2%, respectively, over the past three years.
Analysts expect JNJ’s revenue to increase 6.3% in the current quarter (ending March 31, 2021), 11.4% in the current year and 4.7% next year. The company’s EPS is expected to improve 0.9% in the current quarter, 18.4% in the current year and 8% next year. Moreover, its EPS is expected to grow at a rate of 5.6% per annum over the next five years.
In comparison, MRNA’s revenue grew at a CAGR of 57.5%, over the past three years.
Analysts expect MRNA’s revenue to surge 26,790.9% in the current quarter (ending March 31, 2021) and 1,893.3% in the current year but decline 20.2% next year. The company’s EPS is expected to grow 960% in the current quarter and 1,183.7% in the current year but decline l 30.5% next year. However, MRNA’s EPS is expected to grow at an average rate of 16.8% per annum over the next five years.
Profitability
JNJ’s trailing-12-month’s revenue is nearly 103 times MRNA’s. In addition, JNJ is more profitable with a gross profit margin of 65.7% versus MRNA’s negative value.
Moreover, JNJ’s ROE and ROA of 24% and 7.5%, respectively, compare favorably with MRNA’s negative values.
Valuation
In terms of forward p/e, JNJ is currently trading at 19.33x, which is 212.8% more expensive than MRNA, which is currently trading at 6.18x. However, JNJ is significantly less expensive compared to MRNA in terms of trailing-12-month’s p/s (5.07x versus 61.59x).
In terms of trailing-12-month’s price/cash flow, MRNA’s 25.59x is 43.9% higher than JNJ’s 17.78x.
JNJ looks much more affordable here.
POWR Ratings
JNJ has an overall rating of B, which equates to a Buy in our proprietary POWR Ratings system. However, MRNA has an overall rating of C, which translates to Neutral. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight different categories. Among these categories, JNJ has a Quality Grade of B, which is consistent with its strong fundamentals. Here, the bleak prospect of MRNA is evident in its grade of C for Quality.
In terms of Stability Grade, JNJ has an A grade, reflecting that the stock is less volatile compared to its industry peers. In contrast, MRNA has been graded F.
Out of 240 stocks in the Medical – Pharmaceuticals industry, JNJ is ranked #10. In comparison, MRNA is ranked #41 in the 487-stock Biotech industry.
Beyond what’s stated above, our POWR Ratings system has also rated both JNJ and MRNA for Growth, Value, Momentum and Sentiment. Get all the JNJ ratings here. Also, Click here to see the additional POWR Ratings for MRNA.
The winner
Both JNJ and MRNA have emerged as winners in the race to produce an effective coronavirus vaccine and have been receiving commercial authorization from multiple regulatory approval bodies throughout the world. With the vaccine acting as the most significant near-term catalyst, both the companies have been riding high on the back of multiple agreements with the governments of various countries. However, JNJ appears to be a better buy based on the factors discussed here.
JNJ expects to meet its commitment to deliver 100 million doses to the United States government by the end of June and is set to boost its top line for the next couple of years. In fact, the company plans to file for a Biologics License Application (BLA) with the FDA later in 2021. Even though JNJ does not expect to profit from this vaccination venture, it does not lack core business strength. There are approximately 50 therapeutic candidates in JNJ’s pipeline, ranging from neuroscience to oncology. The company has five phase 3 clinical data readouts this year along with nine potential drug approvals in 2021. In fact, JNJ expects to launch more than 14 new drugs by the end of 2023.
Hence, we view JNJ as a relatively cheaper option to bet on its advancing operating model, diversified product portfolio, and focus on global growth. The company is strategically investing into research and development and is innovating fast to ramp up manufacturing. Thus, we believe JNJ is a viable option to bet on as the world gets inoculated and the pandemic finally abates this year.