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Zoetis (ZTS): Analyzing Earnings for Potential Gains

Veterinary drugmaker Zoetis Inc. (ZTS) is all set to disclose its fiscal fourth-quarter earnings tomorrow. With the company boasting an impressive track record of consistently surpassing earnings expectations, would it be wise to acquire the shares of ZTS ahead of its earnings? Keep reading to find out…

Zoetis Inc. (ZTS) is a leading force in the realm of animal health, specializing in the discovery, development, manufacturing, and global distribution of vital medicines, vaccines, and diagnostic tools. Its extensive product portfolio serves a wide array of species, spanning from livestock such as cattle, swine, poultry, fish, and sheep to companion animals like dogs, cats, and horses.

ZTS is scheduled to announce its fourth quarter and full-year 2023 earnings on February 13, 2024. Analysts on Wall Street have high expectations, with a projected 7.4% year-over-year uptick in fourth-quarter revenue, forecasted to reach $2.19 billion. While the company's EPS for the same quarter is expected to climb by 14.6% year-over-year, reaching $1.32.

Moreover, the company has an excellent earning surprise history, surpassing its EPS estimates in each of the trailing four quarters. Meanwhile, the company’s third-quarter results witnessed a solid topline and bottom-line year-over-year growth.

Kristin Peck, the Chief Executive Officer of ZTS, highlighted the company's diverse portfolio across various markets and species as the driving force behind the impressive figures of the third quarter results.

Additionally, the quarter demonstrated well-balanced segment growth, with the U.S. segment achieving an impressive 8% year-over-year revenue increase, reaching $1.17 billion, while the international markets segment also experienced robust growth of 8% year-over-year, totaling $965 million in revenue.

Notably, the companion animal portfolio surged by 11% operationally, led by major franchises in dermatology, pet parasiticides, osteoarthritis pain, and diagnostics. On the other hand, the company’s livestock portfolio grew by 3% operationally, primarily fueled by sales of poultry and cattle products.

Buoyed by the solid third quarter performance, on February 6, 2024, ZTS’ board of directors declared a quarterly dividend of $0.43 per share, payable to its shareholders on June 4, 2024.

The company’s annual dividend of $1.73 translates to a 0.88% yield on the prevailing price level, while its four-year average dividend yield is 0.64%. Its dividend payouts have grown at CAGRs of 22.4% and 23.5% over the past three and five years, respectively.

In terms of price performance, ZTS’ shares have surged 15.6% over the past three months to close the last trading session at $197.32.

Here are the fundamental aspects of ZTS that could influence its performance in the near term:

Strong Financials

ZTS’ total revenue for the fiscal third quarter (ended September 30, 2023) increased 7.4% year-over-year to $2.15 billion, while its non-GAAP gross profit rose 8.5% from the prior-year quarter to $1.52 billion. Moreover, the company’s attributable non-GAAP net income and non-GAAP EPS came in at $629 million and $1.36, up 11.1% and 12.4% from the year-ago value, respectively.

Upbeat Analyst Estimates

The consensus revenue estimate of $8.52 billion for the fiscal year ended December 2023 represents a 5.5% improvement year-over-year. Meanwhile, the consensus EPS estimate of $5.41 for the same period reflects a 10.9% year-over-year surge.

High Profitability

ZTS’ trailing-12-month EBITDA margin and CAPEX/Sales of 41.49% and 8.42% are 688.3% and 99.5% higher than the 5.26% and 4.22% industry averages, respectively.

Likewise, its trailing-12-month asset turnover ratio of 0.60x is 55.1% higher than the industry average of 0.39x. Furthermore, the stock’s trailing-12-month cash per share of $3.82 is 199.9% higher than the $1.27 industry average.

POWR Ratings Exhibit Solid Prospects

ZTS’ robust fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to a Buy in our proprietary rating system. The POWR Ratings are calculated by accounting for 118 distinct 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 Stability justified by its 60-month beta of 0.87. Moreover, the stock’s B grade for Quality is consistent with its higher-than-industry profitability metrics.

Within the Medical - Pharmaceuticals industry, ZTS is ranked #17 out of the 161 stocks.

Beyond what we’ve stated above, we have also rated the stock for Growth, Value, Momentum, and Sentiment. Get all ZTS ratings here.

Bottom Line

Backed by an impressive track record of consistently surpassing earnings expectations, steady dividend growth over the past years, strong third-quarter performance, robust profitability metrics, and optimistic analyst estimates, ZTS emerges as a compelling investment opportunity.

With its impending fourth-quarter results disclosure, now may be an opportune moment to consider investing in the shares of ZTS to potentially capitalize on future gains.

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

While ZTS has an overall grade of B, equating to a Buy rating, you may also check out these other stocks within the Medical - Pharmaceuticals industry: GSK plc (GSK), AbbVie Inc. (ABBV), and Novo Nordisk A/S (NVO), carrying A (Strong Buy) ratings. To explore more Medical - Pharmaceuticals stocks, click here.  

What To Do Next?

Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:

10 Stocks to SELL NOW! >

ZTS shares were trading at $197.82 per share on Monday afternoon, up $0.50 (+0.25%). Year-to-date, ZTS has gained 0.46%, versus a 5.80% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Mukherjee

Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.


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