Paul Harris, CFAZoetis IncZTSTOP PICKNov 24, 2025

Explosion in pet ownership (65% of its business), in addition to its livestock segment (35%). Long-term track record of solid growth. Short-term pressures due to affordability in US, as well as margin degradation on the pet side. Always too expensive, but not today. Long-term industry characteristics haven't changed. 5-6% growth will be re-established in time. Less generic competition. 

Valuation is 11-12x forward PE for a leader in a long-term, secular growth market. Yield is 2.91%.

Painful. Last quarter's numbers were not as bad as expected, and they continue to grow. Their pet business since Covid has flattened. They have potential blockbuster pet drugs coming out in the next 6-12 months. He likes the business for being in an oligopoly, and people spend money on their pets. The market expected ZTS to grow too quickly. Would buy it here rather than sell it.

Their pain management drug for dogs got negative press, though was approved. They reduced guidance. Also, customers are more careful about what they will spend on their pets. These are the headwinds. Meanwhile, their livestock business is doing quite well. ZTS now trades at 14x forward PE, instead of the usual 25x. She is holding, not adding. 

A quality company but is -39% this year and punished since its last, weak quarter.

Cut guidance on weaker outlook for key pain management drug for dogs and cats. Company believes it's a blockbuster drug meeting an underserved need. But side effects, and some deaths, are being reported. Has regulatory approval, but uptake has been slow.

As well, vet visits have slowed because the economy is slowing. And that's affecting demand for its products.

She continues to hold. A leader in the space. Its drugs are necessary. Pet population is growing in general. Valuation is lower than its history. Launching new drugs.

He bought this at end-April. The revenue growth looked good, but that doesn't seem like it will materialize. It can't reverse its downtrend since December.

Is buying Quanta Services, involved in data centres which is an ongoing trend. She sold Zoetis to fund part of this buy. Zoetis is not exposed to Medicare, which is good, but the stock was not performing that well. Pet care is a good business, but the market wasn't rewarding this stock.

Animal healthcare is attractive longer term. Tends to trade at a higher multiple. Parasiticides have done very well. Pain medication for dogs has come under debate; vet community still supports it and sees lots of growth in that area. She'd buy here.

ZTS looks 'decent' with good growth expected still and a reasonable valuation. Sales and earnings are expected to show growth over the next two years. We think it is buyable and would prefer it to the much smaller and riskier PAHC. 
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Librela's actually been on the market for a while, launched in Europe before US. Debate whether it helps or does it cause adverse effects. Company still tags very strong growth for this drug, vets are still recommending it. Reports in a week or two, so we'll get more visibility. If growth stalls on this one, a negative for the stock. So far, things seem on track.

Librela is important, as company thinks it can be a blockbuster. Their other drugs are doing quite well, pipeline is healthy.

Companion pets are a big thing. Growing need for protein from livestock. Above 200-day MA, but that's moving sideways. Trendlines are not fantastic. Trading at 31x, with 10% growth rate, PEG of 3, a bit expensive.