As of July 22, 2023, Zoetis Inc (ZTS, Financial) is experiencing a 6.93% gain, with its stock price standing at $183.51. With a market capitalization of $84.8 billion, the company's Earnings Per Share (EPS) are $4.43. Its GF Value, a unique indicator of a stock's intrinsic worth, is estimated at $205.01, suggesting that Zoetis (ZTS) is modestly undervalued.
Zoetis, previously Pfizer's animal health unit, is a leading company in the animal health industry. It specializes in the sale of anti-infectives, vaccines, parasiticides, diagnostics, and other health products for animals. The firm's revenue is almost evenly split between production animals (cattle, pigs, poultry, etc.) and companion animals (dogs, horses, cats). Its U.S. business leans more towards companion animals, while its international business is slightly skewed towards production animals.
Understanding the GF Value of Zoetis (ZTS, Financial)
The GF Value of Zoetis, calculated based on historical trading multiples, GuruFocus' internal adjustment factor, and future business performance estimates, suggests that the stock is modestly undervalued. An overvalued stock, indicated by a price significantly above the GF Value Line, may offer poor future returns. Conversely, an undervalued stock, where the price is significantly below the GF Value Line, may promise high future returns. Therefore, Zoetis' current price of $183.51 per share indicates potential for higher long-term returns due to its undervalued status.
Financial Strength Analysis
Investors need to consider a company's financial strength to avoid the risk of permanent capital loss. Key indicators such as the cash-to-debt ratio and interest coverage can provide a clear picture of this strength. Zoetis has a cash-to-debt ratio of 0.31, ranking below 69.14% of companies in the Drug Manufacturers industry, indicating fair financial strength.
Profitability Assessment
Consistent profitability over the long term reduces risk for investors. Zoetis has been profitable for the past 10 years, with a revenue of $8.1 billion and an Earnings Per Share (EPS) of $4.43 over the past twelve months. Its operating margin of 35.42% ranks better than 96.81% of companies in the Drug Manufacturers industry, indicating strong profitability.
Growth Prospects
Company growth is a crucial factor in valuation. Zoetis' 3-year average annual revenue growth is 9.8%, ranking better than 62.79% of companies in the Drug Manufacturers industry. Its 3-year average EBITDA growth rate is 12%, outperforming 54.37% of industry peers.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to the weighted average cost of capital (WACC) can provide insights into its profitability. Zoetis' ROIC is 22.93, exceeding its WACC of 8.41, implying value creation for shareholders.
Conclusion
In conclusion, Zoetis (ZTS, Financial) appears to be modestly undervalued. The company exhibits fair financial strength, strong profitability, and promising growth compared to its industry peers. For more detailed financial information about Zoetis, please check its 30-Year Financials here.
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