Zoetis Inc. (ZTS): what the price requires
The current priced-in claim for Zoetis Inc. (ZTS) is temporarily suppressed because the live engine record is unavailable. The dated report remains a snapshot, not a current market read.
Generated: 2026-07-14 · Exported: 2026-07-16 · Source: https://boothcheck.com/report/ZTS
Headline
| Field | Value |
|---|---|
| Ticker | ZTS |
| Company | Zoetis Inc. |
| Current price | $75.13/sh |
| Composition | Companion animal 70% / Livestock 29% / Contract manufacturing & human health 1% |
What The Price Requires (Inversion)
The assumption today's price embeds, recovered by inverting the valuation.
| Field | Value |
|---|---|
| Inversion basis | whole-company |
| Operating margin needed | 8.7% |
| Operating margin today | 35.6% |
| Margin compression implied | -26.9pp |
| Multiple paid | 12x operating income |
The operating-margin requirement is derived from the framework's value band at year 12, a separately labeled basis from the headline growth/duration solve.
The price sits below what even a 5%/yr operating-profit decline would warrant; the inversion reports a bound, not a solved growth path.
Solve inputs: computed at a 7.7% cost of capital with 4% terminal growth over a 5-year stage.
Reconcile: at the x-ray's 9.3% required return this reads ~0%/yr; the models below use their own rates.
How unusual the bet is: within-range
| Reference | Value |
|---|---|
| vs own history | -5.12σ |
| cohort percentile (of 112 peers) | 13 |
| implied end-window share | 0% |
Valuation X-Ray
The price is supported by asset-based and relative-multiple and growth-DCF value, while earnings-power lands below the price. A value/asset-supported name, not a pure growth bet.
How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.
| Family | Median price/FV | Models | Reads |
|---|---|---|---|
| Asset | 0.89x | 4 | justifies |
| Earnings | 1.58x | 4 | expensive |
| Relative | 0.93x | 4 | justifies |
| Growth | 1.21x | 4 | expensive |
Families that justify the price: Asset, Relative, Growth Families that call it expensive: Earnings
The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 7.3%); the inversion above states its own rate.
Per-Model Detail (n=16)
| Model | Family | FV | Price/FV | Applicable | Methodology |
|---|---|---|---|---|---|
| DCF Perpetual Growth | Growth | $85.85 | 0.88x | yes | FCF base $2.1B, growth 2% (input: historical growth), terminal g 2.4%, WACC 7.3%, 5yr projection |
| DCF Exit Multiple | Growth | $75.38 | 1.00x | yes | Exit EV/EBITDA: 78.1x / 80.1x / 82.1x (bear / base = today's held flat / bull), 5yr |
| Relative Valuation | Relative | $88.58 | 0.85x | yes | P/E 24x (static sector reference · 2026-04), scenarios: 20.3x / 24.0x / 27.7x (bear / base = reference held flat / bull), EV/EBITDA 35.2x |
| Simple DDM | Growth | — | — | no | — |
| Two-Stage DDM | Growth | $46.83 | 1.60x | yes | Stage 1: 8% for 5yr, Stage 2: 3.5% perpetual |
| Simple Excess Return | Asset | $67.64 | 1.11x | yes | BV/sh $7.65, ROE (TTM) 81.8%, ke 9.3% |
| Two-Stage Excess Return | Asset | $345.74 | 0.22x | yes | 5yr excess ROE then converge to ke=9.3% |
| Discounted Future Market Cap | Growth | $52.63 | 1.43x | yes | Rev $9.5B, growth 2% (input: historical growth; tapered), Terminal P/S: 2.8x / 3.3x / 3.9x (bear / base = today's held flat / bull, cap 8x) |
| Peter Lynch Fair Value | Relative | $72.36 | 1.04x | yes | EPS $6.03, growth 8% (input: historical EPS growth), PEG=1.45 (Fair) |
| Margin Trajectory | Growth | — | — | no | — |
| Earnings Power Value | Earnings | — | — | no | — |
| Residual Income | Asset | $113.16 | 0.66x | yes | BV $7.65 + 5yr PV of (ROE (TTM) 81.8% − Kₑ 9.3%) × BV; BV grows 8.8%/yr |
| Graham Number | Asset | $32.22 | 2.33x | yes | √(22.5 × EPS $6.03 × BVPS $7.65) — Graham's conservative floor |
| EV/EBITDA Relative | Relative | $1.17 | 64.21x | yes | EBITDA $0.49B × sector EV/EBITDA 16.0x (excluded from median) |
| FCF Yield | Earnings | $37.39 | 2.01x | yes | FCF $2136.0M / Kₑ 9.3% — zero-growth perpetuity |
| SBC-Adj FCF Yield | Earnings | $35.06 | 2.14x | yes | SBC-adj FCF $2.04B (FCF $2.14B − SBC $0.09B) capitalized at Kₑ |
| Ben Graham Formula | Earnings | $126.58 | 0.59x | yes | EPS $6.03 × (8.5 + 2×8.3%) × (4.4 / 5.3%) |
| ROIC-Justified P/B | Asset | — | — | no | — |
| P/Sales Sector | Relative | $90.05 | 0.83x | yes | Revenue $9.51B × sector P/S 4.0x |
| PEG Fair Value | Relative | $74.84 | 1.00x | yes | EPS $6.03 × (PEG 1.5 × growth 8.3% (input: historical EPS growth)) → PE 12.4x |
| Earnings Yield | Earnings | $65.19 | 1.15x | yes | EPS $6.03 / required return 9.3% (Rf 4.3% + ERP 5.0%) |
| Funds From Operations Multiple | Relative | — | — | no | — |
| Clinical Phase NPV | Growth | — | — | no | — |
| Merton | Asset | — | — | no | — |
| V5 Mechanical | — | — | — | no | — |
Solvency
| Field | Value |
|---|---|
| Net debt | $7.1b |
| Net debt / NOPAT (after-tax) | 2.70x |
| Net debt / operating income (pre-tax) | 2.14x |
| Interest coverage | 14.6x |
| Share count CAGR (buyback) | -2.8% |
| Burning cash | no |
Bullet Takeaways
Zoetis sits near $79 after a roughly 21 percent single-day drop in May 2026, when a weak first quarter reset expectations for the animal-health leader. The 52-week range, from about $72 to $162, shows how far sentiment has fallen from the premium the stock used to carry.
At the new price the market pays about 12 times company-wide operating income, low enough to discount a future where operating profit declines rather than grows. Most model families, growth-DCF, relative-multiple, and asset-based, now land above the price; only the strict earnings-power read calls it expensive.
The quarter that caused the drop is the crux. US revenue fell 8 percent on softer companion-animal demand and tougher competition, while international rose 17 percent on strong livestock. Whether the US franchise stabilizes is what separates a re-rating from a value trap.
Bull Case
Start with what the market is pricing in, then test it against the business. After the May 2026 selloff, at about $79 the stock trades near 12 times operating income, in the lower half of its peer multiple range and below where even a 5 percent annual decline in operating profit would be warranted. That is the market pricing Zoetis as a company whose best days are behind it. The fundamentals describe something more durable. Zoetis is the scaled leader in animal health, with a diversified base across companion-animal medicines, livestock products, and contract manufacturing and human health, and a trailing operating margin near 35 percent that few businesses of any kind sustain. Even in the disappointing first quarter, total revenue still rose 3 percent to $2.3 billion, and the company guided full-year 2026 revenue to roughly $9.68 to $9.96 billion with adjusted EPS of $6.85 to $7.00, which against a high-$70s price is a high single-digit earnings yield on a franchise with this margin profile.
The growth engine that drove the premium is not broken, it is digesting. Operational revenue growth has been led by the Simparica parasiticide franchise, key dermatology products, and the monoclonal-antibody pain treatments Librela and Solensia for osteoarthritis (FY2025 10-K, accession 0001555280-26-000011). Librela alone has now been used in more than a million dogs in the US, and these are recurring, vet-prescribed, branded therapies with real switching friction, not commodity products. The international business is doing the heavy lifting right now, up 17 percent in the quarter on strong livestock demand, which shows the diversification working: when US companion-animal spending softens, livestock and overseas markets cushion the whole.
Valuation is where the case earns its keep. The discounted-cash-flow and relative-multiple models land in the high $80s to about $100, the price-to-sales and PEG reads near $90 and $100, and the residual-income read above $110, all above the current price, because the market has repriced a high-margin compounder to a multiple usually reserved for slow-decliners. The balance sheet is investment-grade with interest coverage above fourteen times, and the share count has been shrinking. The bull case is that the May drop overshot: a dominant, high-margin, recurring-revenue animal-health franchise is now priced for stagnation it is unlikely to actually deliver.
Bear Case
Open on the external variable with the most leverage, because for Zoetis it is not interest rates or commodities, it is the discretionary health spending of pet owners colliding with rising competition. The first quarter of 2026 made the exposure concrete: US revenue fell 8 percent as companion-animal demand weakened and competition intensified, and the companion-animal segment, the high-margin heart of the franchise, declined about 4 percent globally with dermatology, parasiticides, and osteoarthritis pain all falling at once. When the three pillars of the premium portfolio decline simultaneously, it is not a one-product stumble, it is a demand-and-competition signal, and the market's roughly 21 percent reaction reflected exactly that reading.
The competitive threat is structural and is intensifying on schedule. Zoetis itself warns that the animal-health industry is highly competitive and that many of its competitors are well positioned, and it flags that any decrease in companion-animal owners' reliance on veterinarians could reduce its market share and materially affect operating results (FY2025 10-K, accession 0001555280-26-000011). That second risk is live: as blockbuster products age, generic and follow-on competitors enter, and the rise of direct-to-consumer and retail pet-pharmacy channels chips away at the veterinarian-anchored distribution model that long protected Zoetis pricing. Apoquel and the parasiticide franchise face exactly this kind of erosion, and Librela, while innovative, now competes against established low-cost NSAIDs in osteoarthritis.
The price already reflects some of this, which is why the bear case is about whether the deterioration deepens rather than whether it exists. Management cut and widened guidance to organic operational revenue growth of just 2 to 5 percent, a sharp step down from the double-digit growth that earned the old multiple, and the adjusted EPS miss against the roughly $1.62 consensus shows estimates were still catching down to reality.
Valuation
The valuation hinges on a repricing that has already happened. After the May 2026 drop, Zoetis at about $79 trades near 12 times company-wide operating income, in the lower half of its peer range and below the level that even a modest operating-profit decline would justify. The model families have followed the franchise rather than the panic: the discounted-cash-flow reads land in the low $80s to about $100, the relative-multiple and price-to-sales reads near $90, the PEG read near $100, and the residual-income read above $110, while the strict earnings-power model, which assumes no growth at all, marks the stock expensive. That spread says the price is reasonable to cheap if Zoetis remains even a low-growth compounder, and only expensive if you assume the business stops growing entirely.
The inverted read frames the decision cleanly. To justify today's price the market needs only that operating profit not decline meaningfully, a low bar for a 35 percent-margin leader, but the recent quarter showed that bar is no longer automatic given the US companion-animal weakness. So the question is not whether the models are too optimistic in the abstract; it is whether the first-quarter deterioration is a pause or a trend.
The practical conclusion is a quality franchise on sale, with the valuation cushion real but conditional. The investment-grade balance sheet, the high margin, and the shrinking share count support the downside, and the forward range from the reliable models sits above the price. The upside requires the US business to stabilize and organic growth to hold within the new 2 to 5 percent guide; the downside is a further fade in the premium portfolio that pulls the optimistic fair values down to meet the price. At this multiple the asymmetry favors the patient holder, but only if the demand and competition picture stops worsening.
Catalysts
The decisive catalyst is the trajectory of the US companion-animal business, which drove the first-quarter miss. In that quarter US revenue fell 8 percent and the global companion-animal segment declined about 4 percent, with dermatology, parasiticides, and osteoarthritis pain all down, while international revenue rose 17 percent on livestock strength. Watch the next prints for whether US companion-animal demand stabilizes, whether Simparica, the dermatology line, and Librela return to growth, and whether the international and livestock momentum holds. Management guided full-year 2026 to roughly $9.68 to $9.96 billion in revenue, organic operational growth of 2 to 5 percent, and adjusted EPS of $6.85 to $7.00, so any revision to that guide is the headline event.
The competitive catalysts are slower-burning but central. New generic or follow-on entrants against the aging blockbuster products, label updates and new-study data for Librela and Solensia, and any shift in how pet owners buy medicines, including the growth of retail and direct-to-consumer pharmacy channels, all bear on the premium pricing the thesis depends on. Capital allocation, continued buybacks and the dividend, is the catalyst management controls and a signal of confidence. Macro matters here mainly through the consumer: a weaker pet-owner spending environment would pressure the discretionary companion-animal portfolio more than livestock or international.
Sources: Zoetis Q1 2026 results, revenue $2.3 billion up 3 percent, adjusted EPS $1.53 versus about $1.62 consensus, US revenue down 8 percent, international up 17 percent, companion animal down about 4 percent, FY2026 guidance of $9.68 to $9.96 billion and adjusted EPS $6.85 to $7.00 (SEC Form 8-K, May 2026; Investing.com, StockTitan, TIKR earnings coverage); stock at about $77 to $79 with a 52-week range of roughly $72 to $162 (Yahoo Finance, CNN, stockanalysis.com, June 2026); Zoetis FY2025 10-K on the Simparica/dermatology/Librela/Solensia growth drivers and on competitive and veterinarian-channel risks (accession 0001555280-26-000011, filed Feb 12, 2026).
Peer Cohorts (Per Segment, With Filing Citations)
Core business (reported)
- ELAN (Elanco Animal Health Incorporated)
- (no filing in the citation store)
- PAHC (Phibro Animal Health Corporation)
- (no filing in the citation store)
- IDXX (IDEXX LABORATORIES INC /DE)
- (no filing in the citation store)
- AMRX (AMNEAL PHARMACEUTICALS, INC.)
- (no filing in the citation store)
- TEVA (TEVA PHARMACEUTICAL INDUSTRIES LIMITED)
- (no filing in the citation store)
- OGN (Organon & Co.)
- (no filing in the citation store)
- VTRS (Viatris Inc)
- (no filing in the citation store)
- BHC (Bausch Health Companies Inc.)
- (no filing in the citation store)
Methodology Note
- Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
- Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
- Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
- Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.
Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.