Zoetis Faces Challenges Despite Strong Financial Performance

Zoetis Inc. (ZTS), based in Parsippany, New Jersey, is renowned for discovering, developing, and commercializing animal health medicines, vaccines, and diagnostic products and services. With a market capitalization of $74.8 billion, it stands as the largest producer of animal health therapeutics globally, covering pets and livestock.

Typically classified as “large-cap stock,” companies with valuations of $10 billion or more, Zoetis is no exception. Its vast operations across over 100 countries in North America, Europe, and beyond support its substantial market valuation.

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Despite its robust market position, Zoetis’ stock has seen a significant decline. It has dropped 16.5% from its 52-week peak of $200.33, which was reached on September 19, 2024. Comparatively, ZTS has decreased by 5.2% over the last three months, performing slightly better than the ProShares Pet Care ETF (PAWZ), which experienced a 7.4% decline during the same period.

Looking at the longer term, the situation for Zoetis appears more concerning. Over the past year, ZTS has dropped 8.9% and has fallen 11.6% in the last six months. This is in stark contrast to PAWZ, which noted a 3.7% increase over the year, despite a 7.9% decline in the last six months.

Recent trading patterns confirm this downturn: ZTS has remained below its 50-day moving average since late October 2024, and it has not surpassed its 200-day moving average since early November 2024, with only minor fluctuations.

Even after reporting stronger-than-expected financial results, Zoetis saw its stock slide 5.2% following the release of its Q4 results on February 13. The company’s livestock-related revenue decreased by 2.6% year-over-year to $726 million, largely influenced by unfavorable foreign exchange translations. In contrast, revenues from companion animal products surged 8.4% year-over-year, reaching $1.6 billion in both domestic and international markets. Overall, Zoetis’ total revenue for the quarter climbed 4.7% year-over-year to $2.3 billion, surpassing market expectations. Moreover, its adjusted net income rose 11.1% to $632 million, and the adjusted EPS hit $1.40, exceeding consensus estimates by 2.2%.

For the fiscal year 2024, Zoetis reported an impressive 8.3% rise in revenues, reaching $9.3 billion, while its adjusted EPS increased by 11.3% to $5.92. However, the company’s guidance for fiscal 2025 projects revenues between $9.2 billion and $9.4 billion, with a midpoint indicating no revenue growth. The adjusted EPS guidance of $6.00 to $6.10 suggests a modest 2.2% increase at the midpoint, which has raised concerns among investors.

On a positive note, compared to its peer Merck & Co., Inc. (MRK), which has experienced a 24% drop over the past year and a 20.2% decrease in the past six months, Zoetis has maintained relatively better performance.

Despite the weak guidance, analysts remain optimistic about ZTS’ potential. The stock holds a consensus “Strong Buy” rating among 16 analysts, with a mean price target of $209.80, indicating a potential upside of 25.4% from current levels.

On the date of publication, Aditya Sarawgi did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.

 

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