In many cases, when a publicly-traded stock like drug manufacturer Zoetis (NYSE:ZTS) tumbles double digits for the year, analysts typically run away. However, that’s not the case at all with ZTS stock – far from it. Instead, Wall Street experts appear to double down on the upside-challenged enterprise, assigning it a unanimous Strong Buy rating. While the narrative may seem speculative, Zoetis enjoys a very strong fundamental backdrop related to America’s love for its pets.
Indeed, the five analysts covering Zoetis (which specializes in medicines and vaccinations for pets and livestock) are all bullish on the stock. Further, their average price target implies strong gains ahead in the next 12 months. Admittedly, 2022 represented a stinker. In the trailing 365 days, ZTS fell nearly 21%. However, in 2023 thus far, it’s up almost 10%.
Nevertheless, the pensive attitude toward ZTS stock at the moment appears more credible. As TipRanks contributor Nikolaos Sismanis mentioned, last year was a crazy one for the markets. To be sure, most sectors suffered losses, including the healthcare segment. Yet, with the economy potentially adapting to the wild undulations, Zoetis may rise higher.
Originally spun off from pharmaceutical giant Pfizer (NYSE:PFE), Zoetis is the world’s largest producer of pet and livestock-focused medicines and vaccinations. With neither of these sectors likely to lose relevance in the years ahead, ZTS stock stands on firm ground.
Moreover, Americans can’t get enough of their four-legged friends. Unless this narrative pivots dramatically – which is doubtful – ZTS stock may well be one of the new year’s surprise hits.
Interestingly, on TipRanks, ZTS stock has an 8 out of 10 Smart Score rating. This indicates solid potential for the stock to outperform the broader market.
Love for Pets May Keep ZTS Stock Humming Along
While arguably most societies have a soft spot for animals and nature overall, the difference with Americans comes down to financial scale. It’s not just that they adopt pets; rather, they open their wallets to support the entire value chain of pet ownership. Inherently, this framework bolsters the bullish case for ZTS stock.
In 2021, the American Pet Products Association (APPA) reported that U.S. pet industry expenditures totaled $123.6 billion, a banner year. In pandemic-disrupted 2020, the sector reached an extremely impressive sales tally of $103.6 billion, up 6.7% year-over-year. The fact that so many people are willing to pay so much for pet care bodes well for ZTS stock.
Moreover, while pet food and treats dominated the industry by ringing up revenues of $50 billion in 2021, veterinary care and product sales came in a strong second place at $34.3 billion. Therefore, Zoetis should enjoy a long upside pathway, which would then benefit ZTS stock.
As well, demographic trends support the bullish contrarian case for Zoetis. While baby boomers tend to be the most risk-averse when it comes to investing because they also command the greatest wealth of all generations, in pet ownership stats, millennials win out big time. Per the APPA, millennials own the most pets compared to other generations at 32%, followed by boomers at 27%.
Logically, millennials will expand their purchasing power collectively until the oldest members of the cohort enter their 50s and 60s. Thus, the pet industry should have at least a decade of favorable expenditure trends to look forward to. This, too, should help lift ZTS stock.
What is the Price Target for ZTS Stock?
Turning to Wall Street, ZTS stock has a Strong Buy consensus rating based on five Buys, zero Holds, and zero Sell ratings. The average ZTS stock price target is $205.60, implying 28.85% upside potential.
Zoetis Offers Decently-Attractive Financials
While the unanimous Buy rating among analysts provides food for thought, the narrative doesn’t just focus on outside fundamentals. Fortunately, Zoetis offers plenty to get excited about regarding its financial profile.
For one thing, Zoetis’ balance sheet features decent stability. True, metrics such as its cash-to-debt ratio of 0.37 times could use some work. However, on the positive side, Zoetis’ Altman Z-Score (a solvency metric) pings at 7.45, reflecting a very low risk of bankruptcy.
Operationally, the company’s three-year revenue growth rate (on a per-share basis) stands at 10.9%, beating over 65% of the competition. On the bottom line, Zoetis features a net margin of 25.81%, above 92% of sector players.
The Takeaway
To be fair, ZTS stock isn’t the perfect investment. Right now, shares trading at nearly 37 times trailing earnings seems a bit overvalued, especially compared to the sector median of 25 times. Also, hedge funds have been reducing their exposure to ZTS. Still, with the backdrop of millennial pet ownership remaining strong combined with robust analyst support, Zoetis stock deserves a second look.
