About Zoetis
Human health has been in the news a lot lately.
From COVID-19 to other prevalent health issues plaguing the world today, it’s tough at times to remember that the market for animal medicine is a very, very large one, of which Zoetis contributes to greatly.
After all, the company markets its products across 45 countries (according to TD Ameritrade’s platform) and sells its products in over 100 countries across the globe.
Zoetis is sort of a big deal.
At the end of the day, this is an animal health company that develops, manufactures and markets vaccines, medicines, tests and other products that aim to help animals get and stay healthy. From dogs and cats to cattle and sheep, Zoetis has a large consumer and user base.
Before moving onto the company’s financials and other relevant metrics that assist us as investors in making informed decisions with our capital, we’d like to mention as a sort of fun fact that Zoetis was spun off from a major pharmaceutical company by the name of Pfizer.
For those that are unfamiliar with the concept of a spin-off, it’s essentially when a larger company spins off or separates (usually through a sale) itself from a division of its business in order to increase efficiency and focus, ultimately with the aim of benefiting both the company that is spun off and the company doing the spinning off.
Zoetis being spun off from Pfizer is a prime example of this.
Now that we’ve laid some of the groundwork on the history of Zoetis and what the company does, let’s galivant onto the company’s financials and try to figure out whether or not this company’s stock is worth investing in, especially since its down about 30% over the last year’s span of time.
Zoetis’ stock financials
Zoetis (NYSE: ZTS) is currently trading at just north of $155 with a market capitalization of $72.6 billion, has a price-to-earnings (P/E) ratio of 35.42 and offers its shareholders an annual dividend of $1.30.
Even though the company’s share price has seen a healthy drop over this past year, Zoetis’ stock is still a bit pricey in the sense of being overvalued, trading at 35 times earnings where 20 times earnings is typically what is said to indicate that a company’s stock is trading at fair value while anything higher implies that it’s overvalued.
In the case of Zoetis, on the basis of price-to-earnings alone, its stock price is overvalued and this stock still has some more distance to cover on the downside for value-oriented investors to get psyched about the stock.
Even though this is the case, we value a holistic approach to investing and think it’s our responsibility and obligation to dig deeper and get a glimpse of the bigger picture of the metrics driving Zoetis.
In terms of the company’s balance sheet, Zoetis’ management team oversees $13.9 billion in total assets along with around $9.3 billion in total liabilities, which to us, makes a lot of sense. Namely, the pharmaceutical industry is leached with research and development (R&D) expenses that aren’t exactly far and few.
In order to survive in any avenue of the pharmaceutical business landscape, companies small and large must invest, invest and then invest some more in order to stay in the game, let alone stay ahead.
Innovation is huge and strategically deployed (and available to begin with) capital is the main means to which innovation can be achieved in this industry.
Therefore, we’re not concerned with Zoetis’ relatively high amount of total liabilities, as the company has likely been aggressively investing and simultaneously reinvesting in its current products as well as new treatments that will likely lead to more future revenue.
Speaking of revenue, Zoetis’ total revenue (according to the income statement) indicates that its investments have been paying off as its total revenues have been rising each year over the past five years. Specifically, the company’s total revenue stood at $5.3 billion in 2017 and has since risen up to $7.7 billion in 2021.
It may sound strange, but we also think that the world as a whole has grown more and more affectionate and caring towards animals and their health, ultimately willing to spend more on their furry compadres, which has directly supported the relative strength of Zoetis’ top and bottom lines, as this is a trend we don’t see going away any time soon.
Onto the company’s cash flow statement, Zoetis’ net income has been resoundingly positive, also increasing each year over the last five years, sitting at $862 million in 2017 and skyrocketing to just above $2 billion in 2021.
This is incredible growth and we’re more than happy to find that the company’s cash flow is extraordinarily strong.
Zoetis’ stock fundamentals
Usually, we’d try to find some slightly nuanced, fanciful with a hint of humorous way to transition into a company’s profitability metrics, but we feel no need to waste the time with Zoetis.
Its trailing twelve month (TTM) net profit margin overtakes the average of the competition’s by more than a lot. For instance, the company’s TTM net profit margin is 25.78% to the industry’s average of -86.13%, which we’d say is pretty good.
This is one of the perks of being a leader, if not the leader in the animal health industry.
From the standpoint of returns, Zoetis’ TTM returns on equity, assets and investment are modestly greater than that of the industry and its average. For example, Zoetis’ TTM returns on assets are 15.08% to the industry’s 8.85%.
Carving out returns at a rate greater than the competition in such a competitive space is no small feat, even for Zoetis.
But they did it, which makes it that much more impressive.
Should you buy Zoetis stock?
So what if we don’t know much about the medical market for pets?
The numbers don’t lie with Zoetis and this company has a lot of trends favoring its business moving forward.
As the stock market overall has pushed many equities (and their valuations) down, we think Zoetis may have some more downside simply because of the state of the market. However, given that our only major issue with Zoetis is its current valuation (which is an important factor to consider when making an investment, or not) we think, although the company’s numbers are extraordinarily strong, it would make the most sense for the interested investors to inch into a position now if they so desperately want to hop onto the Zoetis train, but for those looking to buy at a relative discount, it would likely be a better idea to hold off and keep your investable funds ready for launch as the current recession deepens.
Considering all of the information above, we deem it most appropriate to give Zoetis a “hold” rating.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.