Zoetis Inc (ZTS)

ZTS has demonstrated consistent, stable and recurring revenue growth, and is now trading at a 30.3X forward P/E, which has come down from its peak of ~39X in 2020. It has shown great margin expansion over the years and it uses all of its free cash flows and more to repurchase shares and issue a dividend. The balance sheet is OK, and it has a decent history of beating earnings estimates. A lot of the value in ZTS is driven by its combination of margin expansion and aggressive share buyback plan. We would be comfortable with the name over a 3 to 5 year horizon due to its strong free cash flow generation, shareholder-friendly management team, and strong margins, but it does trade at a premium valuation and its balance sheet could be stronger. We would be comfortable averaging into ZTS over time.
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They lead in pets' health. It thrived during Covid, but so did the PE, so rising rates have impacted them. However, pet ownership remains strong and even getting younger with more millennials buying pets. Clinics are open now. Spending per visit is up. They cover 8 species. Drug development for pets is shorter with less competition and longer shelf life. A new growth drug tackles ticks and fleas, and will launch a painkiller for dogs that looks promising.

Livestock business grows at 5%, pet business has grown like gangbusters. Great products in pipeline, great chance to grow business. Great R&D. 

It is a higher growth name and is the world's largest player in animal care. He still likes it - people still spend money on pharmaceuticals even in a downturn.

Long owned this. A great pipeline of products in their pet business. Fine balance sheet. People spend $3,000 annually on their pet. Their livestock business will come back. This did well during Covid, but shares fell back after. He expects strong quarters of growth ahead.

Leads with 17% market share in animal healthcare (and livestock). Their pet business thrived during the pandemic. People continue to buy pets and are spending more on pets per capita. Recessions don't slow down pet spending.

Very innovative, lots of great products coming out. Pet healthcare continues to be a priority for pet owners. Anticipates 2023-24 being a really good year.

ZTS operates as an animal health medicine, vaccine, and diagnostic product. ZTS has performed well in the last five years with consistent, stable and recurring revenue growth, and is now trading at 30x times' Forward P/E, which is at the lower end of historical averages. The balance sheet is OK, with net debt of $4.6B. 
Total debt is around 2.4x times trailing twelve-month cash flow of $1.9B, and cash flow declined slightly around 14% compared to $2.2B last year largely due to investment in inventories. 
Based on consensus estimates, sales are expected to grow by 8% on average over the next few years. Overall, the company has been growing, increasing dividends and repurchasing shares consistently over the last few years, the main issue is the valuation: it is trading at a premium level given the high quality of the business. W
e would be comfortable averaging into ZTS over time. 
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