The numbers are in. And they look really good for Moderna (MRNA -4.48%).
On Sept. 17, the Centers for Disease Control and Prevention (CDC) released interim data that compared the effectiveness of the three COVID-19 vaccines on the market in the U.S. Moderna's vaccine was found to be 93% effective at preventing hospitalizations, compared to 88% for the vaccine developed by Pfizer (PFE -0.55%) and BioNTech. Johnson & Johnson's COVID-19 vaccine trailed behind both with an effectiveness against hospitalization of 71%.
The effectiveness of Moderna's and Pfizer's vaccines was very close in preventing infection during the first few months after the second dose -- 92% and 91%, respectively. However, after 120 days, the effectiveness for Moderna's vaccine slipped only 1%, while Pfizer's vaccine effectiveness declined by 14%.
Based on the CDC data, Moderna's COVID-19 vaccine appears to be better than Pfizer's vaccine. But here's why its stock isn't.
Investors who buy growth stocks sometimes believe that valuation is irrelevant. That's not the case, though. Valuation always matters. However, sometimes traditional valuation metrics don't apply very well to especially fast-growing stocks.
You might think that Moderna and Pfizer stack up relatively closely if you only looked at their forward earnings multiples. Moderna's shares trade at a little over 14 times expected earnings, while Pfizer stock trades at a little over 12 times expected earnings.
It's a much different story examining the two price-to-sales (P/S) multiples of the two vaccine stocks, though. Moderna's shares trade at more than 25 times sales. Pfizer's P/S multiple is less than 4.5.
Consider that Wall Street's consensus price target for Moderna is 26% below its current price. Meanwhile, the average analysts' price target for Pfizer reflects a modest 4% premium above the current share price. Why are views so different for these two stocks? Valuation. Analysts recognize that Moderna is priced at a nosebleed level, but Pfizer isn't.
So does diversification
There's arguably an even more important reason why Pfizer is a better stock to buy than Moderna, though. Moderna's near-term fortunes hinge solely on sales of its COVID-19 vaccine. Although Pfizer's Comirnaty vaccine is its top-selling product, the company has a much more diversified revenue base.
In 2020, Pfizer's lineup included seven blockbuster products plus a long list of other drugs with sales in the hundreds of millions of dollars. The company was already poised to deliver solid growth even without its COVID-19 vaccine.
Why is Pfizer's diversification advantage over Moderna so important? There's considerable uncertainty about the dynamics of the COVID-19 vaccine market after next year. Both of these companies could experience sales declines for their COVID-19 vaccines once the pandemic ends.
Sure, there's a good chance that COVID-19 vaccines will be needed on a regular basis, perhaps annually, over the long term. However, the sales levels projected for 2021 and 2022 might not be sustainable even in this scenario.
What about growth prospects?
One of the top reasons why many investors like Moderna is its growth prospects. The idea is that the company will be able to revolutionize how viruses are prevented and how other diseases are treated with its messenger RNA (mRNA) platform.
Moderna could very well be able to launch multiple mRNA vaccines and therapies over the next decade and beyond, driving tremendous growth. There's even a path for the stock to double despite having a steep valuation right now.
However, everything has to go right for Moderna. And it will take years for the company's pipeline programs to progress through clinical testing and hopefully win regulatory approval. Outside of its COVID-19 vaccine, Moderna only has one late-stage candidate. And that's being generous since its cytomegalovirus vaccine doesn't advance into phase 3 testing until later this year.
Meanwhile, Pfizer's pipeline includes 23 late-stage programs. This count excludes a handful of candidates already awaiting regulatory approval. Pfizer's pipeline should also be bolstered in the near future with its pending acquisition of Trillium Therapeutics.
Don't think that Moderna has the mRNA arena all to itself, either. Pfizer and BioNTech are working together on an mRNA flu vaccine. Pfizer has also committed to moving forward with developing mRNA vaccines and therapies on its own.
A tentative advantage
It's possible that Moderna's effectiveness advantage could have a downside. A U.S. Food and Drug Administration (FDA) advisory committee has already opted to only recommend boosters of the Pfizer-BioNTech vaccine for ages 65 and up and for individuals with high risk because of sustained efficacy of the vaccine against preventing severe COVID-19. Moderna's even greater effectiveness could reduce the odds that boosters for its vaccine are authorized.
Both Pfizer and Moderna are also developing new vaccines that specifically target emerging variants. Any advantage that Moderna enjoys currently could only be temporary. On the other hand, the advantages that Pfizer stock has over Moderna will likely remain in place longer.