Animal House: A look at Zoetis’s Stock

Ticker: ZTS
Sector: Healthcare
Industry: Pharmaceuticals
Headquartered: New Jersey, USA
Moat: Wide – Intangible Assets – Patents, Brand, Scale

Action at date of this post

Strong Buy as of 05.18.2024
The price and value intersection points to buying as much as the full amount you intend on investing or somewhere in the range of 50-100% of your intended position. Then look for opportunities to complete the position or buy in systematically over time.

Zoetis Fair Value Analysis

I run a fair value analysis on every stock in two ways. The first is the Discounted Cash Flow (DCF) method which I use for most stocks. I also run the Peter Lynch Fair Value method on stocks as well. I like running both as there are times where one way is more meaningful than the other depending on the stock.

Zoetis Corporate Overview

Zoetis Inc. is a global leader in the animal health industry, dedicated to providing innovative solutions for veterinarians, livestock farmers, and pet owners. Spun off from Pfizer in 2013, Zoetis has a rich heritage and extensive expertise in animal health. The company offers a wide range of products, including vaccines, diagnostics, genetic tests, and medicines designed to prevent and treat diseases in pets and livestock.

With a presence in over 100 countries, Zoetis combines advanced research and development with a deep understanding of the needs of its customers. Committed to sustainability and animal welfare, Zoetis continues to drive advancements that enhance animal health and improve the quality of life for animals and the people who care for them.

Zoetis Segment Analysis

The company reports operating in two geographically led segments – United States and International. Within those two segments they operate in two sub-segments which are companion animals and livestock customers. The US segment makes up 53 % of revenue and international 47%. In the info graphic from the fiscal year 2023 annual report you can see more detail in the operation and revenue of the business.

Zoetis Moat Source

The company’s wide moat is supported by strong intangible assets in patents. In addition, the company’s scale allows it to maintain a strong sales force and distribution networks that would be costly to replicate. Lastly, the company maintains a favorable standing among veterinarians and is widely trusted as a top tier provider of treatments.

Zoetis Growth Outlook

As the largest producer of medicines and vaccines for pets and livestock, Zoetis benefits from a diversified product portfolio and a robust global presence. The main driver of revenue now, and for the foreseeable future is companion animals (pets). The production animal business tends to grow along with GDP and offers little growth above that level.

Once buried inside human health-oriented companies, animal pharma is a growing solo sector. From the companion animal side if boasts many pros – cash-pay customers, fragmented customer base and little generic competition. This all equals pricing power.

Several growth drivers bolster Zoetis’s future prospects. The company’s substantial investment in research and development ensures a pipeline of innovative products that meet evolving market needs. Additionally, the rising global pet population and increased spending on pet healthcare present significant opportunities. Zoetis’ strategic acquisitions further enhance its product offerings and market reach.

The Numbers

Consistent ROIC, ROCE and margins are strong indicators of a moat and Zoetis has them all. A clean balance sheet and steady revenue increases help the company stay the leader in the animal pharma industry.

This website and associated newsletter along with its content/links are not financial advice. Nothing in this newsletter is an investment recommendation. All content is created for entertainment, educational, or informational purposes only. My strong buy, accumulate, hold, reduce or sell opinions are exactly that – opinions. Be sure to do your own research for your own particular circumstances or higher a professional advisor.

At the time of writing this post, the author does have a position in ZTS.