On July 21, 2023, Zoetis Inc (ZTS, Financial) witnessed a promising gain of 6.93%, with its stock price soaring to $183.51. The company, boasting an impressive market cap of $84.8 billion and sales of $8.1 billion, has caught the attention of value investors. Our GF Value indicator suggests that Zoetis (ZTS) is modestly undervalued, with a GF Value of $205.01.
Zoetis, previously Pfizer's animal health unit, has a rich history of providing quality health products for animals. The company's portfolio includes anti-infectives, vaccines, parasiticides, and diagnostics. Zoetis generates nearly half its revenue from production animals like cattle, pigs, and poultry, with companion animal products comprising the other half. Its U.S. operations focus more on companion animals, while its international business leans slightly towards production animals.
Understanding the GF Value of Zoetis (ZTS, Financial)
The GF Value of a stock represents its intrinsic worth, calculated based on historical trading multiples, past performance, and future business performance estimates. If a stock's price significantly exceeds the GF Value Line, it may be overvalued and yield poor future returns. Conversely, if the price is significantly below the GF Value Line, the stock may be undervalued, promising high future returns. With its current price of $183.51 per share, Zoetis appears to be modestly undervalued.
Given Zoetis's undervalued status, its stock's long-term return is likely to surpass its business growth rate.
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Financial Strength of Zoetis (ZTS, Financial)
Before investing in a company, it's crucial to assess its financial strength. Companies with poor financial health pose a higher risk of permanent loss. Zoetis's cash-to-debt ratio of 0.31 is below 69.17% of companies in the Drug Manufacturers industry, indicating fair financial strength.
Profitability and Growth of Zoetis (ZTS, Financial)
Investing in profitable companies, especially those with consistent long-term profitability, is generally less risky. Zoetis, with its operating margin of 35.42%, ranks better than 96.91% of companies in the Drug Manufacturers industry. The company's 3-year average revenue growth rate surpasses 62.72% of companies in the industry, indicating strong profitability and growth.
Return on Invested Capital vs. Weighted Average Cost of Capital
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) provides another measure of profitability. If the ROIC exceeds the WACC, the company is creating value for shareholders. For the past 12 months, Zoetis's ROIC has been 22.93, with a cost of capital of 8.39.
Conclusion
Overall, the stock of Zoetis Inc (ZTS, Financial) appears to be modestly undervalued. The company has fair financial strength and strong profitability. Its growth ranks better than 54.31% of companies in the Drug Manufacturers industry. For more details about Zoetis stock, check out its 30-Year Financials here.
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