Zoetis: Animal Health Leader Now Cheapest Since April 2021

(Preview) Company Update (ZTS US) (Buy)

Summary

• Zoetis shares are the cheapest since April 2021, having fallen by another 17% since we upgraded our rating in February.

• Petcare has strong long-term structural growth, and we believe Zoetis can grow its EPS at a low-teens CAGR for the foreseeable future.

• Q1 results were strong and Zoetis still expects 9-11% operational revenue growth in 2022, but currency has become a larger headwind.

• Zoetis is making strong progress with new products and expanding its U.S. salesforce. Livestock growth should normalize in 2023.

• With Zoetis shares at $158.63 and a 31.5x P/E, we expect a total return of 69% (15.7%annualized) by 2025 year-end. Buy.

Introduction

We review our investment case on Zoetis Inc. after shares have fallen another 17% in the past few months.

We upgraded our rating on Zoetis to Buy in February, when the share price was $193.81, having previously downgraded our rating in July 2021, when the share price was $199.68. We were too early – ZTS stock has fallen by another 17% since our up…