Assessing Zoetis Valuation After a 25% Share Price Slide and Cash Flow Forecasts

• For investors wondering if Zoetis is starting to look like a bargain after a rough stretch, this is the kind of setup where a deeper valuation check can help uncover potential opportunity.
• The stock has bounced about 3.6% over the last week and 2.9% over the past month, but it is still down roughly 24.8% year to date and 25.8% over the last year. That has many investors asking whether sentiment has overshot the fundamentals.
• Recent headlines have focused on Zoetis as a potential long-term beneficiary of structural trends in pet care and livestock health, with analysts highlighting its broad portfolio of companion animal and livestock medicines alongside a robust R&D pipeline. At the same time, there has been growing discussion about whether the pullback in high quality healthcare names like Zoetis reflects temporary macro worries rather than a deterioration in business quality.
• On our checks, Zoetis scores a solid 5 out of 6 for valuation, suggesting the market may be underpricing its cash flows on several fronts. In the sections that follow, we will walk through different valuation methods to explore why that may be the case and then finish with a more holistic way to think about what the stock might be worth.

Find out why Zoetis's -25.8% return over the last year is lagging behind its peers.

Approach 1: Zoetis Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow model estimates what a company is worth today by projecting the cash it can generate in the future and then discounting those cash flows back into today's dollars.

For Zoetis, the latest twelve month free cash flow stands at about $2.2 billion. Analysts expect this to rise steadily, with Simply Wall St extending their forecasts beyond the analyst horizon using a 2 Stage Free Cash Flow to Equity framework. Under these assumptions, free cash flow is projected to reach roughly $3.9 billion by 2035, with intermediate years like 2026 to 2029 moving through the mid to high $2 billion and low $3 billion range.

When all those future cash flows are discounted back, the model arrives at an intrinsic value of about $177.71 per share. That implies Zoetis trades at roughly a 31.2% discount to this estimate, suggesting the market may be pricing in more pessimism than the cash flow outlook supports.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Zoetis is undervalued by 31.2%. Track this in your watchlist or portfolio, or discover 913 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Zoetis.

Approach 2: Zoetis Price vs Earnings

For profitable businesses like Zoetis, the price to earnings ratio is often the go to yardstick because it directly links what investors are paying to the profits the company is generating today. In general, faster growth and lower perceived risk justify a higher PE, while slower growth, more volatile earnings or company specific risks tend to pull a normal or fair PE down.

Zoetis currently trades on a PE of about 20.3x, which is broadly in line with the wider Pharmaceuticals industry at roughly 20.1x, but meaningfully below the 25.2x average of its peer group. To go a step further, Simply Wall St calculates a Fair Ratio of 24.7x for Zoetis, a proprietary estimate of what its PE should be given its earnings growth outlook, margins, industry, size and risk profile. This kind of Fair Ratio is more informative than a simple peer or industry comparison, because it adjusts for the company’s specific strengths and risks rather than assuming all drug makers deserve the same multiple.

With Zoetis trading at 20.3x compared to a Fair Ratio of 24.7x, the shares appear modestly undervalued on an earnings basis.

Result: UNDERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1462 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Zoetis Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, a simple framework on Simply Wall St’s Community page that lets you attach a clear story about Zoetis to specific assumptions for future revenue, earnings and margins. You can link that story to a financial forecast and a Fair Value, and then compare that Fair Value to today’s share price to decide whether you would buy, hold or sell. The platform dynamically updates those Narratives as new news or earnings arrive so you can see, for example, how one investor’s optimistic view that Zoetis can grow earnings to around $3.2 billion by 2028 and deserves something close to a $230 price target contrasts with a more cautious investor who sees competitive and regulatory risks justifying a Fair Value nearer $153. You can then choose which of those perspectives best fits your own expectations before you act.

Do you think there's more to the story for Zoetis? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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