Today, Zoetis Inc (ZTS, Financial) experienced a daily loss of 3.13%, adding to a three-month decline of 14.29%. Despite these figures, the company boasts a robust Earnings Per Share (EPS) of 5.19. This prompts the question: is Zoetis modestly undervalued? Let's delve into a detailed valuation analysis to uncover the answer.
Company Introduction
Zoetis sells a variety of health products for animals, including anti-infectives, vaccines, and diagnostics. The company, formerly part of Pfizer, leads the industry in market share. It generates approximately 35% of its revenue from production animals and 65% from companion animals. In the U.S., its business heavily favors companion animals, whereas internationally, it leans slightly towards production animals. With a current stock price of $163.17 and a market cap of $74.50 billion, Zoetis presents an interesting case for potential investors, especially when compared to its GF Value of $197.97, suggesting it might be undervalued.
Understanding the GF Value
The GF Value is a proprietary measure calculated from historical trading multiples, a GuruFocus adjustment factor based on past returns and growth, and future business performance estimates. For Zoetis, the GF Value is set at $197.97, indicating that the stock might be trading at a discount. This valuation suggests that long-term returns could potentially exceed the company's business growth, considering the stock's current market position.
Financial Strength and Stability
Investing in companies with robust financial health reduces the risk of capital loss. Zoetis's financial strength, with a cash-to-debt ratio of 0.29, ranks it fair compared to its industry peers. This metric, along with its interest coverage, provides insight into the company's ability to manage debt and finance its operations.
Profitability and Growth Prospects
Zoetis has maintained profitability over the past decade, with an impressive operating margin of 35.97%, ranking higher than 96.86% of its industry counterparts. The company has also demonstrated solid growth, with a 3-year average annual revenue growth of 9.8%. These figures suggest that Zoetis is not only managing its current operations effectively but is also positioned for sustainable growth.
Comparing ROIC and WACC
An essential aspect of assessing a company's profitability is comparing its Return on Invested Capital (ROIC) against its Weighted Average Cost of Capital (WACC). Zoetis's ROIC of 23.47 significantly surpasses its WACC of 9.95, indicating efficient value creation from its invested capital.
Conclusion
In conclusion, Zoetis (ZTS, Financial) appears to be modestly undervalued based on its financial health, profitability, and growth metrics. For those interested in a deeper financial analysis, Zoetis's 30-Year Financials can provide more insights.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
