Zoetis: Record Share Price & 52x P/E May Not Last Into 2022

(Preview) Company Update (ZTS US) (Neutral)

Summary

• Zoetis stock reached another new all-time high this week, gaining 24% since July; we believe the stock is too expensive.

• We believe Zoetis has a low-term EPS CAGR in the low teens and should trade at a 38.5x P/E; the stock is currently at over 52x 2021 EPS.

• Q3 results released in November were stronger than expected, but long-term revenue growth trends seemed unchanged.

• Full-year 2021 outlook has been raised, but still implies a continuing deceleration in year-on-year growth as the boost from COVID fades.

• With shares at $244.25, we expect a total return of just 4% (1.5% annualized) by 2024 year-end. The Dividend Yield is just 0.5%. Avoid.

Introduction

We review our Neutral rating on Zoetis, after the stock reached a new all-time high this week. We downgraded our rating on Zoetis from Buy to Neutral in July, after a gain of 30% in 4 months. Since then ZTS stock has gained another 24%.

We continue to believe that Zoetis stock is too expensive. We believe Q3 2021 results released in Nove…