Should You Buy Zoetis Amid Rising Pet Care Demand?

Zoetis Inc. (ZTS), the world’s leading animal health company, reported outstanding results for the second quarter of 2024 and raised its full-year guidance. The company’s revenue came in at $2.36 billion, surpassing analysts’ estimate of $2.31 billion. It posted adjusted net income per share of $1.56 for the second quarter, compared to the consensus estimate of $1.48.

The company achieved 12% revenue growth in the U.S. and 10% operational revenue growth internationally, with its companion animal and livestock portfolios showing impressive global operational growth of 12% and 9%, respectively.

"Our excellent first half across key franchises, including osteoarthritis (OA) pain, Simparica and key dermatology, is a testament to our commitment to deliver breakthrough innovations that address our customers' unmet needs and our differentiated execution,” said Kristin Peck, Chief Executive Officer of Zoetis.

“I look forward to continuing our momentum into the second half of the year where we will remain focused on executing our strategy, building trust and preference for our best-in-class products and delivering value to shareholders,” Peck added.

Zoetis continues to advance innovation and animal care worldwide. The company received approval in Canada for Alpha Ject Micro® 7 ISA, the latest version of its combination vaccine for Atlantic Salmon, now offering enhanced protection against Infectious Salmon Anaemia Virus (ISA).

Additionally, Simparica and Simparica Trio were approved in Canada for treating and controlling infestations of Asian longhorned ticks in dogs. ZTS also received approval in Japan for Draxxin® KP, an injectable for treating bacterial pneumonia in cattle. Further, the company is strengthening its Diagnostic offerings with the expected launch of a new point-of-care hematology analyzer, Vetscan® Opticell™, in the second half of 2024.

After a solid first half and the underlying strength in companion animal, Zoetis raised its full-year 2024 revenue guidance to $9.10 - $9.25 billion, with an adjusted EPS of $5.78 to $5.88. The company increased its full-year operational revenue growth to 9% - 11% and operational growth in adjusted net income to 13.5% - 15.5%.

Shares of ZTS have gained 5.9% over the past three months to close the last trading session at $180.90.

Let's look at factors that could influence ZTS’ performance in the upcoming months.

Robust Financials

For the second quarter that ended June 30, 2024, ZTS’ total revenue increased 8.3% year-over-year to $2.36 billion. Its non-GAAP gross profit rose 7.4% from the year-ago value to $1.69 billion. Non-GAAP net income and earnings per common share attributable to Zoetis were $711 million and $1.56, up 9% and 10.6% from the prior year’s quarter, respectively.

Favorable Analyst Estimates

Analysts expect ZTS’ revenue for the third quarter (ending September 2024) to grow 6.4% year-over-year to $2.29 billion. The consensus EPS estimate of $1.46 for the ongoing quarter indicates an improvement of 7.7% year-over-year. Further, the company has topped consensus revenue and EPS estimates in three of the trailing four quarters, which is impressive.

For the fiscal year ending December 2024, Street expects Zoetis’ revenue and EPS to increase 7.5% and 9.5% from the previous year to $9.18 billion and $5.83, respectively. The company’s revenue and EPS for the fiscal year 2025 are expected to grow 6.7% and 10.5% year-over-year to $9.80 billion and $6.44, respectively.

High Profitability

ZTS’ trailing-12-month gross profit margin of 70.01% is 21.9% higher than the industry average of 57.41%. Likewise, the stock’s trailing-12-month EBITDA margin of 40.89% is 603.3% higher than the industry average of 5.81%. Moreover, its trailing-12-month levered FCF margin of 18.97% is significantly higher than the industry average of 1.31%.

Further, the stock’s trailing-12-month ROCE, ROTC, and ROTA of 48.88%, 17.38%, and 16.55% favorably compared to the industry averages of negative 41.24%, negative 19.81%, and negative 27.50%, respectively. Its trailing-12-month CAPEX/Sales of 6.90% is 109.9% higher than the industry average of 3.29%.

POWR Ratings Reflect Promise

ZTS’ sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. ZTS has a B grade for Quality, consistent with its higher-than-industry profitability. The stock has a B grade for Stability, justified by its 60-month beta of 0.86.

Within the Medical - Pharmaceuticals industry, ZTS is ranked #42 out of 157 stocks.

Beyond what I have stated above, we have also given ZTS grades for Momentum, Value, Growth, and Sentiment. Get all ZTS ratings here.

Bottom Line

ZTS delivered an outstanding second-quarter performance, showcasing the high demand for its innovative products and its ability to capture and expand markets. Following a solid first half, the company is well-poised to continue its momentum into the year's second half, focusing on executing its strategy and building trust and preference for its best-in-class products.

Given robust financials, accelerating profitability, and a bright long-term outlook, ZTS could be an ideal buy for substantial returns.

How Does Zoetis Inc. (ZTS) Stack Up Against Its Peers?

While TWLO has an overall POWR Rating of B, investors could also check out these other stocks within the Medical - Pharmaceuticals industry with an A (Strong Buy) rating: Novartis AG ADR (NVS), AstraZeneca PLC ADR (AZN), and Merk & Co. Inc. (MRK).

To explore more A or B-rated medical stocks, click here.

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ZTS shares were unchanged in premarket trading Monday. Year-to-date, ZTS has declined -7.66%, versus a 19.02% rise in the benchmark S&P 500 index during the same period.

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.

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