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Zoetis: Pets and Profits

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In terms of revenue, Zoetis is the world leader in its specific market.

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Zoetis (NYSE:ZTS) is the only publicly-traded pure-play in the animal health and vaccines market. This is a global growth business, making it an attractive long-term investment.

In terms of revenue, the company is the world leader in this market, and until this year, it was a wholly-owned division of Pfizer (NYSE:PFE).

In January, Pfizer sold 20% of Zoetis to the public through an IPO. In June, Pfizer offered the remaining 80% to Pfizer shareholders through an exchange offer. The offer was substantially oversubscribed. Zoetis is now a fully independent company.

Zoetis offers animal health products for livestock and domestic pets. Sales of livestock-related products have grown at an 18.5% rate over the last three years. Pet-related products have grown at a 12.5% rate.

Zoetis is financially strong, with $468 million in cash and cash equivalents, and average net profit margins of 10%.

The debt/capital ratio is currently on the high side at 83% because Zoetis raised $3.65 billion through a bond issue just before the IPO.

Full-year earnings per share are expected to range from $1.36 to $1.42 on revenues of $4.425 billion to $4.525 billion. The current consensus among analysts is for full-year earnings of $1.40 on revenues of $5.522 billion.

Major research groups, including Argus, see Zoetis' earnings per share growing at an 11% compound rate over the next five years. Both Argus and Deutsche Bank research have a 12-month target price of $38 for Zoetis. They also agree on a 2014 earnings per share estimate of $1.62. There is a dividend of $0.26 per share per year for a current yield of less than 1%.

Following the conclusion of the Pfizer exchange offer, the stock dipped to a low of $28.97. My rating is to buy Zoetis below $30.

Editor's Note: This article was written by John Dessauer of John Dessauer's Outlook for MoneyShow.

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No positions in stocks mentioned.
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