4. Zoetis Inc (NYSE:ZTS)
Number of Hedge Fund Investors: 61
When asked about Zoetis Inc (NYSE:ZTS), Jim Cramer said he likes the stock “very much.”
Cramer said CNBC recently had CEO Kristin Peck on and the executive is doing a “great job.”
Zoetis Inc (NYSE:ZTS) makes vaccines and medicines for pets and livestock.
Barclays recently published a list of recession-resilient stocks. Zoetis was part of the list.
The firm’s analyst Anshul Gupta said these stocks have daily average option notional volumes of more than $5M and have strong upside.
Investors are watching Zoetis Inc (NYSE:ZTS) because of Librela, its new medication for treating osteoarthritis (OA) in dogs, a chronic joint condition with no cure.
The U.S. Food and Drug Administration (FDA) approved Librela in May 2023, and it was cleared for use in Europe in 2020. According to the company’s Q2 report, Librela and Solensia, a similar medication for cats, generated $116 million and $150 million in sales combined.
The U.S. has about 90 million dogs, and around 80% visit a vet annually. This suggests a market of roughly 72 million dogs that could be diagnosed and treated. Prices for the drug vary by weight, but vets typically charge over $80 per dose, with Zoetis Inc (NYSE:ZTS) earning about $40 per treated dog each month, or $480 annually.
Andvari Associates stated the following regarding Zoetis Inc. (NYSE:ZTS) in its Q2 2024 investor letter:
“Zoetis Inc. (NYSE:ZTS) was spun out of Pfizer in 2013 and is the largest company serving the animal health market. They make medicines, vaccines, diagnostics, devices, and technology solutions for their pet owners and veterinarians. Their revenues are split 65% for pet care and 35% for livestock.
The nice thing about Zoetis, and the pet healthcare market in general, is the trend of increasing pet ownership and the increasing willingness to spend more money on pets every year. When compared to overall consumer spending, spending on pets has nearly doubled since 1990. The resilience of the pet healthcare industry is particularly exceptional—the industry has never had a year of negative growth in the last 15 years. Zoetis in particular has grown several percentage points faster than the industry.
The financials of Zoetis are also exceptional. It has steady revenue growth, gross margins in the 70s, an ability to reinvest in the business at 20% returns, and is still able to return billions to shareholders with dividends and share repurchases. Despite having the highest ratio of capex to revenues in this group of new holdings, Zoetis is still very cash generative. The company generated $1.8 billion of free cash over the last twelve months off of $8.7 billion of revenues, a healthy 20% margin. In its first five years after being spun from Pfizer in 2013, Zoetis averaged 4.1% of capex to revenues. The reason for capex trending higher over the last five years is to support a slate of fast-growing new products, inventory buildups, and productivity enhancements. We believe this capex ratio will slowly come down over time as revenues come in for its newer products and as customers draw down inventories.”
