For the first 10 years of its publicly traded life, leading animal healthcare stock Zoetis (ZTS 0.54%) easily outpaced the S&P 500, rising 480% and doubling the index's total returns. However, since then, Zoetis' stock has slid nearly 40% as the company has delivered a handful of fine (but underwhelming) quarters that didn't live up to its stretched valuation.
Previously trading at an average price-to-earnings (P/E) ratio of 39 since 2013, Zoetis now commands a P/E ratio of just 21 -- essentially, its lowest-ever mark. At this discount, Zoetis is a clear long-term buy, in my opinion.
NYSE: ZTS
Key Data Points
The case for a Zoetis turnaround
Zoetis remains the top dog in the animal healthcare industry, developing medicines, vaccines, diagnostics, and other therapeutics for companion animals and livestock. While its stock price may have declined recently, Zoetis and its research and development engine keep humming along. Chief Executive Officer Kristen Peck believes the company will have "at least one major market approval every year over the next several years," reinforcing the notion that Zoetis' future remains bright.
Image source: Getty Images.
Of these new therapies, the company believes 12 have "blockbuster" potential, meaning they could reach sales of more than $100 million. Zoetis currently has 17 blockbuster drugs, to give you an idea of the strength of this pipeline. Furthermore, Zoetis' core R&D target markets of chronic kidney failure, oncology, and cardiology for dogs and cats are expected to represent a $5 billion market opportunity, compared with the company's annual sales of $9.3 billion.
Trading at 21 times earnings, Zoetis doesn't need double-digit sales growth to be an outperformer. But it may get closer to that figure than the market expects. The global animal healthcare industry is expected to grow by 5% to 6% annually through 2035. Zoetis has grown sales faster than this market every single year since 2013, delivering 8% annualized increases over that time. I think Zoetis is a good bet to keep this streak alive and turn its stock around, especially given its steadily growing dividend and declining share count.
