Should Zoetis Stock be in Your Portfolio? Leading animal health company Zoetis' (ZTS) wide-ranging portfolio of successful drugs and increased international market penetration have helped the...

Leading animal health company Zoetis' (ZTS) wide-ranging portfolio of successful drugs and increased international market penetration have helped the stock gain significantly over the past year. So, given the company's strong financials and the approval of several of its leading products in the international markets, let's evaluate if this is an opportune time to add the stock to one's portfolio. Read on.

Veterinary drug manufacturer Zoetis Inc. (ZTS), in Florham Park, New Jersey, offers vaccines, dermatology products, and point-of-care diagnostic products in the United States and internationally. The company's innovative pet care portfolio and accelerated sales of diagnostics products have helped the stock gain 38.4% over the past year. Also, as the company continues to receive approvals for its innovative monoclonal antibody therapies and make investments in launching leading products into international markets, it should be able to sustain strong financial performance in the coming quarters.

The stock has gained 22.5% over the past three months and 13.1% year-to-date. Closing yesterday's session at $187.23, ZTS is trading slightly below its 52-week high of $187.37.

With a substantial uptick in the number of families adopting new pets during the COVID-19 pandemic and increased spending in pet care products, ZTS is well positioned to continue growing. Furthermore, a substantial increase in the sale of livestock products in the international markets should help the company further improve its profit margin.

Here is what we think could shape ZTS' performance in the coming months:

Favorable Analyst Estimates

Analysts expect ZTS' EPS to increase 21.3% year-over-year to $1.08 in the current quarter, ending June 2021. Its consensus EPS estimates indicate a 17.4% increase in the current year and a 12.2% increase next year. ZTS has an impressive earnings surprise history; it beat the Street's EPS estimates in each of the trailing four quarters.

A $1.82 billion consensus revenue estimate for the current quarter indicates a 33.6% improvement year-over-year. Also, its revenue is estimated to increase 13.8% in 2021 and 8% in 2022.

Leading Products Receive Approval in International Markets

Earlier this year, the European Commission granted marketing authorization for Solensia, the first injectable mAb for alleviating pain associated with osteoarthritis in felines. This monoclonal antibody, developed by ZTS, has also received approval in Switzerland. Since osteoarthritis remains vastly neglected and undertreated in cats, this drug could allow the company to cater to the unmet needs of its customers. thereby potentially generating good sales.

Furthermore, in the first quarter of 2021, ZTS' one-shot vaccine for pigs—Fostera PCV MH—received approval in the Chinese market. In addition, the company received the approval of Poulvac Procerta HVT-ND in Canada, Brazil and other smaller markets, coupled with Simparica Trio (sarolaner, moxidectin, pyrantel chewable tablets) in parasiticides in Japan, Mexico and some other international markets.

Robust Financials and Profitability

ZTS' total revenue increased 22% year-over-year to $1.9 billion in the first quarter ended March 31, 2021. The company's U.S. segment revenue was $933 million, representing an increase of 19% year-over-year. Under its international segment, ZTS' revenue came in at $922 million, up 27% on a reported basis, compared with the first quarter of 2020. Its net income rose 32% from its year-ago value to $559 million, while EPS increased 33% year-over-year to $1.17.

ZTS' 69% trailing-12-month gross profit margin is 24.7% higher than the 55.9% industry average. Also, the company's 25.3% and 51.9% trailing-12-month net income margin and ROE compare favorably with the respective industry averages. Also, its 20% trailing-12-month levered free cash flow is 786.3% higher than the 2.3% industry average of 2.3%.

POWR Ratings Reflect Promising Outlook

ZTS has an overall A rating, which translates to Strong Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. ZTS has a Sentiment Grade of B, consistent with analysts' expectation that its revenue and earnings will grow.

Also, in terms of Growth Grade, ZTS has a B. The company's strong financial performance is in sync with this grade.

In addition, it has a B grade for Quality. This justifies the company's higher-than-industry gross profit margin.

Click here to see the additional POWR Ratings for ZTS (Value, Stability, and Momentum).

The stock is ranked #2 of 226 stocks in the F-rated Medical – Pharmaceuticals industry.

If you're looking for other top-rated stocks in the same industry, with an Overall POWR Rating of A or B, you can access them here.

Bottom Line

ZTS' diverse portfolio of products for livestock and pet care, and high hopes for its recently approved drugs should help the company to achieve long-term growth. In fact, increased pet ownership as well as medicalization rates should drive greater demand for its innovative new products. And an expanding global presence should enable the company to provide stellar returns to its investors. So, we think it could be wise to bet on the stock now.

Click here to checkout our Healthcare Sector Report for 2021

ZTS shares were unchanged in premarket trading Monday. Year-to-date, ZTS has gained 13.47%, versus a 14.85% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.

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