Zoetis (ZTS) — whose name is related to zoology — is probably not a household name with investors, notes dividend reinvestment specialist Chuck Carlson, editor of the industry leading DRIP Investor.
The company is a leading provider of healthcare medicines, vaccines, and diagnostic products designed for veterinarians, livestock producers, and people who raise and care for farm and companion animals. This is no niche business — annual revenues will approach $6 billion this year.
Zoetis has over 60 years of experience in the animal health sector. Formerly part of Pfizer (PFE), the company was spun off into an independent company in 2013. The firm has roughly 300 product lines and sells its products in more than 100 countries.
Approximately 57% of revenues are derived from farm animal products, with 42% coming from companion animal products. Driving growth this year has been the company’s new parasiticide products and vaccines, as well as its dermatology portfolio. Revenues rose 12% in the second quarter, with adjusted net income increasing 44%.
The company registered nice gains in its international business, with revenue here totaling $728 million, or 51% of the total. Revenue in the international segment rose 15% in the quarter, with sales of companion animal products rising 24%.
In the U.S., sales rose 9%, with companion animal products growing 15%. The company is broadening its footprint in the diagnostic market with the recent acquisition of Abaxis, a leader in diagnostic instruments for veterinary care.
For 2018 overall, the firm expects revenue of $5.7 billion to $5.8 billion, up from $5.3 billion in 2017. Adjusted per-share profits are expected to reach $3 to $3.10 this year, up from $2.40 a year ago.
One sticking point for some investors may be the stock’s valuation, which is rather rich. The shares currently trade at 29 times the company’s high-end guidance for per share profits this year. That valuation doesn’t leave a lot of room for disappointment.
Nevertheless, Zoetis has earned a premium valuation given the company’s near- and long-term growth record — per-share profits have increased more than 100% since the firm went public in 2013. The dividend has nearly doubled since 2013.
I’m willing to pay up for good merchandise, and Zoetis is good merchandise. The stock has posted a higher high every year but one since 2013. Zoetis offers a direct-purchase plan whereby any investor may buy the fist share and every share directly from the company.
I like the long-term growth prospects of animal health care, especially overseas where Zoetis is showing substantial growth. The stock represents an excellent way for DRIP investors to gain exposure to this growing sector.
