Wondering if Zoetis is attractively priced or if the recent moves are just noise? This article walks through how the market is valuing the animal health giant and what that could mean for you.
The share price recently closed at US$131.10, with returns of 1.8% over the last 7 days and 7.5% over the last 30 days, although the 1 year return sits at a 20.5% decline and the 3 year and 5 year returns are also negative at 20.5% and 5.6% respectively.
Recent coverage of Zoetis has focused on its position in animal health treatments and how investors are reassessing companies tied to long term demand for pet and livestock care. This context helps explain why some investors are rechecking whether the current share price lines up with the company’s fundamentals and growth plans.
Zoetis currently has a valuation score of 4 out of 6. This means it screens as undervalued on four of the six key checks we use. Next we will compare what different valuation methods say about that, before finishing with a way to assess value that brings all of these tools together.
A Discounted Cash Flow, or DCF, model estimates what a company could be worth by projecting its future cash flows and discounting them back to today using a required return. It is essentially asking what all of Zoetis’ expected future cash generation is worth in today’s dollars.
Zoetis’ latest twelve month free cash flow is about $2.21b. Using a 2 Stage Free Cash Flow to Equity model, analysts and extrapolated estimates project free cash flow out to 2035, with 2030 free cash flow estimated at $3.41b. Earlier years up to 2029 are based on analyst estimates, while later years are extrapolated using modest growth rates, all in US$.
On these inputs, the model arrives at an estimated intrinsic value of about US$195.95 per share. Compared with the recent share price of US$131.10, the DCF output suggests Zoetis trades at about a 33.1% discount, which indicates the stock screens as undervalued on this measure.
For a profitable business like Zoetis, the P/E ratio is a useful yardstick because it links what you pay today to the earnings the company is already generating. Investors usually accept a higher P/E when they expect stronger growth or see lower risk, and look for a lower P/E when growth expectations are more modest or risks feel higher.
Zoetis currently trades on a P/E of 20.7x. That sits close to the Pharmaceuticals industry average P/E of 20.1x and below the peer group average of 23.0x, so on simple comparisons the shares are not priced at a premium to the sector. To go a step further, Simply Wall St calculates a proprietary “Fair Ratio” of 24.3x for Zoetis, which is the P/E level that would typically line up with its earnings growth profile, industry, profit margins, market cap and risk characteristics.
This Fair Ratio can be more informative than a plain peer or industry comparison, because it adjusts for company specific features rather than assuming all firms deserve the same multiple. Lining the two up, Zoetis’ current P/E of 20.7x sits below the Fair Ratio of 24.3x, which indicates that the shares appear undervalued on this metric.
Earlier we mentioned that there is an even better way to understand valuation. Let us introduce you to Narratives, which are simple stories you build around Zoetis that connect your view of its products, markets and risks to a set of numbers like future revenue, earnings, margins and a fair value that you can then compare to today’s price.
On Simply Wall St’s Community page, Narratives are an accessible tool used by millions of investors to link a company’s story to a financial forecast and a fair value estimate. Investors can then see at a glance whether their view suggests the stock looks expensive or cheap relative to the current market price. Those Narratives update automatically when fresh news, earnings or guidance comes in.
For Zoetis, one investor might build a more optimistic Narrative that looks closer to the analyst high case, with a fair value around US$197.51 or even a bullish target of US$230.00. Another investor might lean toward a more cautious Narrative with a fair value closer to US$130.00. Comparing those different stories and values side by side can help you decide which assumptions you are most comfortable with and how that lines up with the latest share price.
For Zoetis however we’ll make it really easy for you with previews of two leading Zoetis Narratives:
🐂 Zoetis Bull Case
Fair value: US$151.00 per share
Valuation gap vs last close: about 13.2% below that fair value
Implied revenue growth assumption: 4.89% a year
Analysts backing this view see room for steady revenue growth supported by unmet demand in both pet and livestock care, with recurring revenue from established product franchises.
They are building in stable to slightly higher profit margins, helped by cost discipline, a richer mix of higher margin therapies and ongoing international expansion.
This Narrative assumes investors continue to accept a solid P/E multiple for Zoetis that reflects its existing portfolio strength and a pipeline that can support long term earnings.
🐻 Zoetis Bear Case
Fair value: US$130.00 per share
Valuation gap vs last close: about 0.8% above that fair value
Implied revenue growth assumption: 4.12% a year
The more cautious view starts from slower expected revenue growth, with analysts highlighting ongoing competition, regulatory scrutiny and product launch headwinds.
While margin assumptions remain healthy in this Narrative, the key difference is a lower future P/E multiple as some analysts question how much of a premium Zoetis should carry.
Supporters of this view tend to see the current share price as close to fair value on their numbers, so they focus more on execution risks and the timing of the next major growth drivers.
This side by side comparison is a useful shortcut, but it is not a verdict. Your next step is to decide which assumptions feel closer to your own expectations for Zoetis and how that lines up with the current share price. If you want to go deeper into either story, you can open the full bull or bear Narrative and adjust the numbers to reflect your own view of the business.
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.
