What happened

Shares of Zoetis (NYSE:ZTS) jumped 10% last month, according to data from S&P Global Market Intelligence. The animal health leader reported solid second-quarter and first-half 2019 operating results that reflected strength from recent product launches and acquisitions. Total revenue grew 8% in the first half of this year compared to the same period of 2018, although higher operating expenses and a much higher tax bill pushed net income 7% lower in that span.

Investors weren't too concerned with that development, especially considering Zoetis paid very low taxes in 2018 and that shares have walloped the returns of the broader market since their initial public offering. But the business is currently relying a little too heavily on its animal companion portfolio, which is masking weakness in its livestock portfolio.

A man in a suit drawing an ascending yellow step chart.

Image source: Getty Images.

So what

Zoetis continues to reap the rewards of its market-leading companion animal portfolio, which sells products aimed at dogs, cats, and horses. The companion animal segment reported a $270 million increase in sales in the first half of 2019 compared to the year-ago period. Considering the recent $2 billion acquisition of Abaxis was expected to deliver at least $200 million in revenue in 2019, investors can see that the new point-of-care diagnostic portfolio didn't waste time making major contributions.

The company also leaned on some of its core brands -- Simparica, Clavamox, and ProHeart -- for operational strength. However, Zoetis hasn't been able to pull its livestock portfolio out of an operational rut. Revenue from those products dipped 5% in the first half of 2019 compared to the year-ago period.

Now what

Zoetis remains well positioned to capitalize on important trends in the companion animal market and even in certain livestock markets, such as aquaculture. But investors need to remain vigilant. The business could be at risk of growing online and retail sales for a growing number of its companion animal diagnostics that don't require a trip to a veterinarian, especially if the acquisition pipeline dries up and the livestock portfolio continues to underperform.

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