Zoetis: Upgrade To Buy After 22% Fall From Peak & Strong Q4

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

Summary

• We upgrade our rating on Zoetis to Buy, after shares have fallen 22% from their peak, to below the level at our downgrade 7 months ago.

• Zoetis is a high-quality business capable of a 10%+ EPS CAGR long term. Its trailing P/E is now 41.2x, compared to 51.8x at our downgrade.

• Q4 results released on Tuesday showed a strong finish to 2021, with EPS growing 22% year-on-year, driven by Companion Animal revenues.

• The structural growth in pets revenues remain powerful; new product development is strong, and margins have continued to expand.

• With shares at $193.81, we expect a total return of 46% (10.4% annualized) by 2025 year-end. The Dividend Yield is 0.7%

Introduction

We upgrade our rating on Zoetis Inc. to Buy, after reviewing Q4 2021 results released on Tuesday (February 15).

We previously downgraded our rating on Zoetis to Neutral in July 2021, after a gain of 30% in 4 months. Subsequently Zoetis stock first ran up to a peak of $248 near the end of 2021, before falling back by 22% to $1…