A Unique Investment Opportunity: Zoetis (ZTS) at a Discount

Finding a stock that not only brings joy but also offers the potential for solid returns is a rare delight. One prime example of such a stock right now is Zoetis (ZTS).

Zoetis is known for its work in animal healthcare, playing a vital role in ensuring our pets are healthy, livestock is cared for, and even helping to manage public health issues like bird flu which impacts food prices. Since its initial public offering (IPO) in 2013, Zoetis has significantly outperformed the market, increasing investor returns more than fivefold.

Recently, however, the stock has seen a decline of 36%. This drop has created a rare opportunity to invest at a lower price. Below are five compelling reasons to consider increasing your investment in this remarkable S&P 500 dividend stock.

1. Diverse and Innovative Offerings

Zoetis provides a broad array of products including medicines, vaccines, diagnostics, and advanced animal health solutions for both pets and livestock. It stands out for its diversity within the animal healthcare sector. Here are some key figures:

• Zoetis produces treatments for eight main species: dogs, cats, cows, chickens, pigs, horses, fish, and sheep.
• The company boasts 15 major products generating over $100 million each in annual sales.
• More than 300 distinct products are available in its portfolio.
• In the last ten years, Zoetis has launched over 2,000 new products and innovations.
• Companion animals account for about two-thirds of its revenue, while livestock generates one-third.
• The U.S. market is responsible for 55% of sales, and 45% comes from international sources.
• Notably, 90% of sales come from products that rank as the top or second in market share.

Since 2014, Zoetis has consistently outpaced the overall animal healthcare market in growth, primarily thanks to its unwavering focus on innovation. The veterinary healthcare segment is expected to grow by about 5% annually through 2032, driven by the trend of treating pets like family.

2. Expanding Market for Osteoarthritis Treatments

Zoetis has recently introduced two promising drugs for managing osteoarthritis (OA) pain in dogs and cats: Librela and Solensia. These treatments are designed to be more effective than traditional non-steroidal anti-inflammatory medications and have quickly gained popularity among pet owners.

Sales from these OA treatments jumped by 80% in 2024, making them the company’s fourth-largest revenue source. Considering that about 40% of dogs and cats will develop OA during their lifetime, these treatments are likely to see sustained demand as pet owners continue to invest in their animals' health.

Moreover, as pets are living longer, the incidence of OA will likely increase, enhancing the value of Zoetis' newest treatment options. Currently, just 10% of dogs with OA are treated with Librela, leaving substantial room for market growth.

3. Strong and Growing Profitability

Zoetis has consistently demonstrated its ability to adapt and innovate, resulting in remarkable profitability. Its net profit margin has tripled since 2012, and its return on invested capital (ROIC) has reached 21%, placing it among the top performers in the S&P 500 index.

High and increasing ROIC indicates that the company is generating significant profits relative to its debt and equity, paving the way for potential long-term success. This positive profitability reinforces Zoetis’ capacity to reinvest in growth initiatives and reward its shareholders.

4. Reducing Share Count and Increasing Dividends

With rising profits, Zoetis has been able to boost its dividend by an impressive 22% annually over the past decade. Simultaneously, the company has been reducing the total number of outstanding shares by 1% each year since 2014.

This reduction in shares tends to enhance earnings per share (EPS) because as the total share count declines, the value per share naturally rises. Coupled with the recent 36% decline in stock price, these share buybacks become even more advantageous since the company can repurchase shares at a reduced price. Additionally, the company’s dividend yield is currently at a historical high, consuming only 32% of net income, allowing for further increases down the road.

5. An Unprecedented Valuation Opportunity

Currently, Zoetis' stock trades at a price-to-earnings ratio (P/E) of 29 with a dividend yield of 1.2%.

The valuations experienced by Zoetis right now are among the most favorable in its history. This combination of a lower price, consistent growth, rising profitability, and commitment to returning value to shareholders positions Zoetis as a compelling choice for investors looking to double down on an S&P 500 dividend stock.

Zoetis, Dividend, Stocks