Zoetis: Down 10%+ in Past Year Despite Strong Year-to-Date Results

Company Update (ZTS US) (Buy): Animal health earnings algorithm is powering ahead, and concerns about Elanco rival launches may be overstated.

Highlights

• Revenues up 10%, Net Income up 9% YTD as earnings algorithm continues.

• Shares at 30x guided 2024 EPS; Dividend raised 16% after 15% hike last year.

• New competitors coming for ZTS’s 2 top products, but we see impact as modest.

• Along with prior-year stock build and disposal, shares may be volatile near-term.

• At $175.81, we see a 38% total return (11.4% p.a.) by 2027 year-end. Buy.

Introduction

We revisit Zoetis after its shares have fallen by 10%+ since a peak in September, to 10.6% lower than a year ago:

Zoetis Share Price (Last 1 Year)

Source: Google Finance (16-Dec-24).

We last published research on Zoetis in March, when we reiterated our Buy rating after not writing about it for more than a year. Zoetis was briefly a small position in our “Select 15” model portfolio until March 2023, when we exited with a 12.5% profit at a price of $164.47. After more than 1.5 years, shares are currently just 6.9% higher than our exit level.

We believe Zoetis remains a high-quality business, and its shares can generate a 10%+ annualized return over the next few years, though several ongoing and pending events can mean share price volatility over the next 6 months.

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