Zoetis: Strong Q2 Underlying Growth But Hit By Strong U.S. Dollar

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

Summary

• Zoetis released Q2 results last Thursday, and shares have fallen another 4% since, to 31% below their December 2021 peak.

• Net Income was flat year-on-year in Q2, but primarily due to currency. Operationally, revenues grew 8% and Net Income grew 9%.

• Strong underlying growth came despite temporary headwinds from Russia/Ukraine, China and one legacy product (DRAXXIN).

• New products continue to make strong progress, and full-year 2022 outlook was tightened slightly. P/E is now less than 35x.

• With shares at $173.18, we expect a total return of 53% (13.6% annualized) by 2025 year-end. Buy.

Introduction

Zoetis Inc. released their Q2 2022 results last Thursday (August 4), and its stock has fallen 4% since then.

We upgraded our rating on Zoetis to Buy in February, after shares had already fallen 22% from its December 2021 peak. They have fallen by another 9% in the six months since, underperforming the S&P 500 by approximately 6%.

Net Income was flat year-on-year in Q2, but primarily due to curr…