Zoetis: EPS Down In Q3, But Only Due To Currency & Supply Chain Disruption

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

Summary

• Zoetis shares fell 11% on the day of Q3 results, as investors reacted to a 3.7% decline in its Adjusted EPS; shares are down 39% this year.

• Much of the EPS decline was due to currency and a higher tax rate, though operational revenue growth of 5% still disappointed.

• Supply chain disruptions and labor shortages at vet clinics reduced growth; there was also an exceptional generics headwind.

• Management expects most supply chain issues to be resolved by year-end. There were also good news on key products.

• With shares at $142.61, the P/E is 30x, and we expect a total return of 62% (16.8% annualized) by 2025 year-end. Buy.

Introduction

Zoetis Inc. released their Q3 2022 results last Thursday (November 3). Shares fell 11% on the day of the results and, while they have recovered about half of that loss since, remain 39% down year-to-date. Compared to when we upgraded our rating to Buy in February, ZTS stock has lost 26% after dividends

Q3 results were worse than our investment case, but mostl…