Zoetis Inc (ZTS, Financial) recently recorded a daily gain of 2.67%, and a 3-month gain of 0.81%. With an Earnings Per Share (EPS) of 4.43, the question arises: is the stock modestly undervalued? This article aims to delve into the financials and valuation of Zoetis (ZTS) to answer this question. Read on for a detailed analysis.
Understanding Zoetis Inc (ZTS, Financial)
Zoetis sells a variety of health products for animals, including anti-infectives, vaccines, parasiticides, and diagnostics. The company's revenue is almost equally split between products for production animals and companion animals. Zoetis (ZTS) holds the largest market share in the industry and was previously a part of Pfizer's animal health unit. With a current stock price of $185.52, Zoetis has a market cap of $85.70 billion. The GF Value, an estimation of the stock's fair value, stands at $206.13, indicating that Zoetis might be modestly undervalued.
The GF Value of Zoetis (ZTS, Financial)
The GF Value is a unique measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line provides an overview of the fair value at which the stock should ideally be traded. If the stock price is significantly above the GF Value Line, it is likely overvalued, and vice versa.
According to this valuation method, Zoetis (ZTS, Financial) appears to be modestly undervalued. This suggests that the long-term return of its stock is likely to be higher than its business growth.
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Evaluating Zoetis' Financial Strength
Investing in companies with poor financial strength can pose a high risk of permanent capital loss. To avoid this, it is essential to assess a company's financial strength before purchasing shares. Zoetis' cash-to-debt ratio is 0.31, which ranks worse than 68.7% of companies in the Drug Manufacturers industry. However, with an overall financial strength score of 6 out of 10, Zoetis' financial health is fair.
Profitability and Growth of Zoetis
Investing in profitable companies, especially those with consistent profitability over the long term, poses less risk. Zoetis has been profitable for 10 out of the past 10 years. With an operating margin of 35.42%, which ranks better than 97.01% of companies in the Drug Manufacturers industry, Zoetis displays strong profitability.
Growth is a crucial factor in a company's valuation. Zoetis' 3-year average annual revenue growth is 9.8%, which ranks better than 62.84% of companies in the Drug Manufacturers industry. The 3-year average EBITDA growth rate is 12%, which ranks better than 54.29% of companies in the same industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted cost of capital (WACC) is another way to evaluate its profitability. If the ROIC is higher than the WACC, the company is creating value for shareholders. Over the past 12 months, Zoetis' ROIC was 22.93, while its WACC came in at 8.49.
Conclusion
In conclusion, the stock of Zoetis (ZTS, Financial) appears to be modestly undervalued. The company's financial condition is fair, its profitability is strong, and its growth ranks better than 54.29% of companies in the Drug Manufacturers industry. For more details about Zoetis stock, check out its 30-Year Financials here.
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