Zoetis Inc. (ZTS) in Parsippany, N.J., discovers, develops, manufactures, and commercializes animal health medicines, vaccines, and diagnostic products internationally. It commercializes products primarily across species, including livestock and companion animals. In comparison, IDEXX Laboratories, Inc. (IDXX) in Westbrook, Maine, develops, manufactures, and distributes products and services primarily for the companion animal veterinary, livestock and poultry, dairy, and water testing markets worldwide. The company operates through CAG; Water Quality Products; LPD; and Other segments.
Because pets require adequate care from their owners to have good health, and the production of healthy livestock ensures a safe food supply and price stability, the animal-health services market is gradually gaining traction around globe. In addition, an increasing government focus on averting animal disease outbreaks benefits the animal-health services sector. Moreover, the animal-health services industry is expected to flourish because of rapid technological advancements and increasing research and development activities in the veterinary pharmaceutical industry.
According to a Transparency Market Research report, the global animal healthcare market is expected to grow at a 7.2% CAGR through 2028. Therefore, both ZTS and IDXX should benefit. IDXX stock has slumped 28.1% in price over the past year, while ZTS has lost 1.5%.
But which of these two stocks is a better buy now? Let’s find out.
Latest Developments
On May 19, 2022, ZTS’ board of directors declared a $0.33 per share dividend for the third quarter of 2022. The dividend will be paid on Thursday, Sept. 1, 2022, to all holders of record of its common stock as of the close of business on Thursday, July 21, 2022.
On May 4, 2022, Jay Mazelsky, IDXX's President and CEO, said, "Veterinarians and their staffs continue to work passionately to support their practices in a demanding environment. IDEXX solutions help to improve patient care and manage increased demands on their time, as well as to continue to advance higher standards for pet healthcare, including utilization of diagnostics."
Recent Financial Results
ZTS’ revenue increased 6% year-over-year to $1.99 billion for its fiscal first quarter, ended March 31, 2022. The company’s non-GAAP gross profit grew 7% year-over-year to $1.42 billion, while its non-GAAP net income came in at $625 million, representing a 3.6% year-over-year increase. Also, its non-GAAP EPS was $1.32, up 4.8% year-over-year.
IDXX’s revenue has increased 8% year-over-year to $836.55 million for the fiscal first quarter, ended March 31, 2022. Its gross profit grew 5.9% year-over-year to $498.75 million. However, its net income came in at $193.97 million, representing a 5.1% year-over-year decrease. Also, its EPS was$2.27, down 3.4% year-over-year.
Past and Expected Financial Performance
ZTS’ revenue and EPS have grown at CAGRs of 10.1% and 15.1%, respectively, over the past three years. Analysts expect ZTS’ revenue to increase 4.8% for the quarter ending June 30, 2022, and 7% in its fiscal 2022. The company’s EPS is expected to grow 2.5% for the quarter ending June 30, 2022, and 8.1% in its fiscal 2022. Furthermore, its EPS is expected to grow 11.1% per annum over the next five years.
In comparison, IDXX’s revenue and EPS have grown at CAGRs of 13.3% and 24.4%, respectively, over the past three years. The company’s revenue is expected to increase 4.7% for the quarter ending June 30, 2022, and 6.9% in fiscal 2022. However, its EPS is expected to decline 33.3% for the quarter ending June 30, 2022, and 4.2% in fiscal 2022. Also, IDXX’s EPS is expected to increase 10.2% per annum over the next five years.
Profitability
ZTS’ trailing-12-month revenue is 2.41 times what IDXX generates. ZTS is also more profitable, with gross profit margin and net income margin of 70.66% and 26.27%, respectively, compared to IDXX’s 58.56% and 22.43%, respectively.
However, IDXX’s 109.37%, 23.70%, and 32.15% respective ROE, ROA, and ROTC are higher than ZTS’ 47.31%, 12.86%, and 15.56%.
Valuation
In terms of forward non-GAAP P/E, IDXX is currently trading at 47.76x, which is 40.8% higher than ZTS’ 33.93x. Furthermore, IDXX’s 33.40x forward EV/EBITDA ratio is 42.3% higher than ZTS’ 23.47x.
So, ZTS is relatively affordable here.
POWR Ratings
ZTS has an overall B rating, which equates to a Strong Buy in our proprietary POWR Ratings system. In comparison, IDXX has an overall C rating, which translates to a Neutral. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.
ZTS has a B grade for Stability, which is in sync with its 0.76 beta. In comparison, IDXX has a C grade for Stability, which is consistent with its 1.11 beta.
ZTS has an A grade for Quality. This is justified given ZTS' 70.66% trailing-12-month gross profit margin, which is 27.1% higher than the 55.60% industry average. In comparison, IDXX has a Quality grade of B, which is in sync with its 58.56% trailing-12-month gross profit margin, which is 5.3% higher than the 55.60% industry average.
Of the 165 stocks in the Medical - Pharmaceuticals industry, ZTS is ranked #19. However, IDXX is ranked #43 out of 150 stocks in the Medical - Devices & Equipment industry.
Beyond what I have stated above, we have also rated the stocks for Growth, Momentum, Value, and Sentiment. Click here to view all the ZTS Ratings. Also, get all the IDXX ratings here.
Click here to checkout our Healthcare Sector Report for 2022
The Winner
The animal healthcare industry is expected to grow with the increasing focus on the healthcare need of pets and livestock. While both ZTS and IDXX are expected to gain, we think it is better to bet on ZTS now because of its robust financials, better growth prospects, lower valuation, and higher profitability.
Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the other top-rated stocks in the Medical - Pharmaceuticals industry here. Also, click here to access all the top-rated stocks in the Medical - Devices & Equipment industry.
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ZTS shares were unchanged in premarket trading Tuesday. Year-to-date, ZTS has declined -29.24%, versus a -12.86% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.
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