Zoetis Inc. (ZTS): A Bull Case Theory

We came across a bullish thesis on Zoetis Inc. on Value investing subreddit by anonymous_sheep1. In this article, we will summarize the bulls’ thesis on ZTS. Zoetis Inc.'s share was trading at $128.18 as of November 28th. ZTS’s trailing and forward P/E were 21.58 and 19.49 respectively according to Yahoo Finance.

Zoetis Inc. engages in the discovery, development, manufacture, and commercialization of animal health medicines, vaccines, diagnostic products and services, biodevices, genetic tests, and precision animal health products in the United States and internationally. ZTS stands out as a dominant player in the growing animal health industry, benefiting from the secular trend of pet humanization as households shift focus from having children to caring for cats and dogs.

The company has consistently delivered strong financial performance, with high single-digit revenue growth, margin expansion, and double-digit EPS CAGR over the past six years. Its balance sheet is robust, featuring solid liquidity, low leverage, and steadily growing retained earnings, complemented by consistent free cash flow generation.

While growth has moderated somewhat, particularly in the OA Pain franchise, both the companion animal and livestock segments continue to perform well, and management has indicated that the OA Pain business is stabilizing. Short-term headwinds, such as slowing vet visits, are unlikely to have a material long-term impact given the persistent demand for pet care products. From a valuation perspective, projecting operating cash flow growth at 5% and CAPEX growth at 7%, consistent with historical trends, results in a five-year free cash flow to the firm CAGR of roughly 4%.

Applying a 30x exit FCF multiple, justified by Zoetis’s market leadership and premium positioning, suggests a five-year IRR of approximately 14%, reflecting an attractive risk/reward profile. Overall, Zoetis combines a resilient growth trajectory, industry leadership, and strong financial health with a compelling long-term investment case, supported by both secular trends and disciplined capital allocation. Its balance of durable growth, margin stability, and free cash flow generation positions it well for sustained shareholder value creation.

Previously we covered a bullish thesis on Zoetis Inc. (NYSE:ZTS) by Best Anchor Stocks in December 2024, which highlighted the company’s growth driven by its OA Pain MAB franchise, strong operational performance, and market leadership in animal health. The company's stock price has depreciated approximately by 22.17% since our coverage. The thesis still stands as Zoetis maintains strong financials. Anonymous_sheep1 shares a similar perspective but emphasizes pet humanization and a free cash flow-based valuation.

Zoetis Inc. is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 75 hedge fund portfolios held ZTS at the end of the second quarter which was 74 in the previous quarter. While we acknowledge the potential of ZTS as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

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Disclosure: None.