Is Zoetis (ZTS) Now Priced For Opportunity After Recent Share Price Weakness

• This article examines whether Zoetis is now priced for opportunity or still appears expensive after a difficult period, walking through what the numbers indicate about its current value.
• The share price closed at US$125.92, with a 6.1% gain over the last 30 days and a 23.1% decline over the past year, which may have influenced how the market views its risk and potential.
• Recent attention on Zoetis has focused on its role in animal health as investors reassess companies linked to long term pet care and livestock trends. That backdrop helps explain why the stock has moved recently, even though its longer term returns over 3 and 5 years, at 11.6% and 22.2% declines, tell a different story.
• On our checklist of 6 valuation tests, Zoetis scores 5 out of 6. Next, we look at what that means using different valuation approaches, before finishing with a way to combine those methods into a clearer view of fair value.

Find out why Zoetis's -23.1% return over the last year is lagging behind its peers.

Approach 1: Zoetis Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow model estimates what a business might be worth by projecting its future cash flows and then discounting those back to today using a required rate of return. It is essentially asking what those future dollars are worth in your hands right now.

For Zoetis, the model used is a 2 Stage Free Cash Flow to Equity approach, based on cash flows in US$. The latest twelve month free cash flow is about $2.21b. Analysts have provided forecasts for several years ahead, such as $2.76b in 2026 and $3.00b in 2027, and Simply Wall St then extrapolates further out, with projected free cash flow of $3.59b in 2030.

When all these projected cash flows are discounted back and added up, the DCF model suggests an intrinsic value of about $198.89 per share. Compared with the recent share price of $125.92, this implies Zoetis trades at roughly a 36.7% discount to that estimate, which indicates that the shares appear undervalued on this measure.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Zoetis is undervalued by 36.7%. Track this in your watchlist or portfolio, or discover more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Zoetis.

Approach 2: Zoetis Price vs Earnings

For profitable companies like Zoetis, the P/E ratio is a helpful way to gauge how much investors are currently paying for each dollar of earnings. It reflects not only today’s profits, but also what the market is willing to pay given its expectations for growth and the level of risk it sees in the business.

Zoetis currently trades on a P/E of 20.9x. That sits above the Pharmaceuticals industry average of 19.9x but below the peer group average of 26.0x, so the stock is priced between the broader sector and closer peers. Simply comparing to those benchmarks, however, can miss company specific factors that might justify a higher or lower multiple.

Simply Wall St’s Fair Ratio seeks to address that. It is a proprietary estimate of what P/E might be reasonable given Zoetis’ earnings growth profile, industry, profit margins, market cap and risk characteristics. Because it blends these drivers into a single number, it can provide a more tailored anchor than a simple industry or peer comparison. For Zoetis, the Fair Ratio is 23.5x, which is higher than the current 20.9x, and this indicates that the shares may be undervalued on this metric.

Result: UNDERVALUED

P/E ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Zoetis Narrative

Earlier we mentioned that there is an even better way to understand valuation. Let us introduce you to Narratives, where you set a clear story for Zoetis by linking your view on its business, revenue, earnings and margins to a financial forecast. This then leads to a fair value that you can easily compare to today’s price inside Simply Wall St’s Community page, which is updated automatically as news or earnings arrive. One investor might build a Zoetis Narrative closer to US$230 based on strong long term demand for animal health, while another might anchor around US$153 with more caution about competition and product risks. Both can then quickly see how their chosen fair value compares to the current Zoetis share price and decide whether that gap looks attractive or not for their own approach.

Do you think there's more to the story for Zoetis? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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