As of July 23, 2023, Zoetis Inc (ZTS, Financial) exhibited a positive day's change of 6.93%, with its stock price closing at $183.51. With a substantial market cap of $84.8 billion and sales reaching $8.1 billion, Zoetis has asserted its presence in the financial landscape. The GF Value of Zoetis, calculated at $205.31, indicates that the stock is modestly undervalued.
Zoetis, a former animal health unit of Pfizer, leads the industry with the largest market share. The company specializes in the sale of anti-infectives, vaccines, parasiticides, diagnostics, and other health products for animals. Its revenue is almost evenly split between production animals (cattle, pigs, poultry, and so on) and companion animals (dogs, horses, cats), with a slight skew towards companion animals in the U.S. and production animals internationally.
GF Value: An Insight into Zoetis' Valuation
The GF Value of a stock is a unique measure of its intrinsic worth, incorporating historical trading multiples, an adjustment factor from GuruFocus based on past performance and growth, and estimates of future business performance. When a stock's price significantly exceeds the GF Value Line, it may be overvalued, potentially leading to poor future returns. Conversely, if the stock's price is significantly below the GF Value Line, the stock may be undervalued, suggesting high future returns. Currently, Zoetis (ZTS, Financial) is considered modestly undervalued, with its stock price lower than the GF Value.
Given Zoetis' relative undervaluation, the long-term return of its stock is likely to exceed its business growth. This is a promising sign for value investors seeking profitable opportunities.
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Financial Strength of Zoetis
Investing in companies with robust financial strength can mitigate the risk of permanent loss. Key indicators of financial strength, such as the cash-to-debt ratio and interest coverage, reveal that Zoetis has a cash-to-debt ratio of 0.31, which is inferior to 69.14% of companies in the Drug Manufacturers industry. Despite this, the overall financial strength of Zoetis is rated 6 out of 10, indicating fair financial health.
Profitability and Growth of Zoetis
Investing in profitable companies, especially those with consistent long-term profitability, poses less risk. Zoetis has been profitable over the past 10 years, with a revenue of $8.1 billion and Earnings Per Share (EPS) of $4.43 in the last twelve months. Its operating margin of 35.42% outperforms 96.81% of companies in the Drug Manufacturers industry. Zoetis' profitability is ranked 10 out of 10, indicating strong profitability.
Growth is a crucial factor in company valuation. Zoetis’s 3-year average revenue growth rate is better than 62.79% of companies in the Drug Manufacturers industry. Its 3-year average EBITDA growth rate is 12%, which ranks better than 54.37% of companies in the same industry.
Return on Invested Capital vs. Weighted Average Cost of Capital
Comparing a company's return on invested capital (ROIC) with its weighted average cost of capital (WACC) provides another perspective on profitability. Zoetis's ROIC of 22.93 exceeds its WACC of 8.41, indicating efficient capital utilization.
Conclusion
In summary, Zoetis Inc (ZTS, Financial) is considered modestly undervalued. The company exhibits fair financial condition, strong profitability, and growth that outperforms 54.37% of companies in the Drug Manufacturers industry. For more comprehensive insights into Zoetis stock, explore its 30-Year Financials here.
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