Does the Recent FDA Nod for Apoquel Signal Upside for Zoetis in 2025?

If you have Zoetis stock or are thinking about getting in, you probably have one big question right now: is this the right time, or should you keep waiting? With Zoetis, it is not just about animal health; it is also about your financial well-being. Let us take a confident, closer look at where things stand.

Over the past month, Zoetis shares have gained around 6.4%, showing some recovery momentum after a tough start to the year. Despite a 3.6% dip in year-to-date returns and a drop of 13% over the past year, some investors are sensing revived optimism. The market seems to have shifted its outlook a bit, and while the past three years have been essentially flat, there are hints of stabilization as Zoetis navigates industry changes. Annual growth in both revenue (up 5.4%) and net income (up 7.2%) still keeps the story interesting against a backdrop of market uncertainty.

But numbers are only half the battle. When it comes to value, Zoetis scores 2 out of 6 on our undervaluation checklist, so some might hesitate to call it a bargain. Still, with shares currently trading at an 18.1% discount to analyst price targets and a similar discount on intrinsic value, there is clear fuel for the debate around future growth potential versus current risk perception.

This leads us naturally to the real meat of the analysis. How do the main valuation methods size up Zoetis today, and could there be an even smarter way to frame what the numbers are telling us? Let us break down the valuation perspectives next.

Zoetis delivered -13.2% returns over the last year. See how this stacks up to the rest of the Pharmaceuticals industry.

Approach 1: Zoetis Cash Flows

The Discounted Cash Flow (DCF) model focuses on forecasting a company’s future cash flows and determining their worth in today’s dollars. This approach helps investors assess what a stock may be worth if attention is placed solely on the cash the business is expected to generate.

For Zoetis, current Free Cash Flow stands at $2.2 billion, with projections suggesting steady growth over time. By 2029, analysts expect Free Cash Flow to reach about $3.4 billion. Looking out ten years, analyst and estimate-based models continue to indicate a positive upward trend, with annual forecasts reflecting gradual increases in cash generation.

Discounting these future cash flows back to their present value results in an estimated intrinsic value of $191.52 per share. Comparing this to recent market pricing, the DCF approach indicates Zoetis is about 18.1% undervalued. This highlights a significant gap between what investors are currently paying and what the company could be worth based on its projected cash flows.

Result: UNDERVALUED

Our DCF analysis suggests Zoetis is undervalued by 18.1%. Track this in your watchlist or portfolio, or discover more undervalued stocks based on DCF analysis.

Approach 2: Zoetis Price vs Earnings

The Price-to-Earnings (PE) ratio is a popular valuation metric for profitable companies because it quickly relates a company's share price to its current earnings. For businesses like Zoetis that consistently generate profits, the PE ratio gives investors a clear sense of whether the market is paying a premium or a discount for those earnings.

Growth expectations and risk play a significant role in determining what a "normal" PE ratio should be. Companies expected to grow faster or with more resilient earnings often trade at higher multiples. In contrast, those with more risk or slower prospects generally trade at lower multiples.

Currently, Zoetis trades at a PE ratio of 26.6x. This is meaningfully higher than the Pharmaceuticals industry average of 19.6x and a peer average of 15.4x. According to Simply Wall St's proprietary Fair Ratio model, which accounts for Zoetis’s earnings growth, margins, industry standing, and risk profile, the suggested fair PE is 21.8x. This indicates that Zoetis is trading above what would typically be justified by company and industry fundamentals.

Result: OVERVALUED

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

Upgrade Your Decision Making: Choose your Zoetis Narrative

A Narrative is your personalized story and perspective about a company, shaped by your own fair value estimate and views of its future growth, margins, and earnings.

Rather than just relying on single metrics like PE or DCF, a Narrative connects what you believe about Zoetis’s business, such as the reasons behind its growth drivers or risks, to a financial forecast and then to a fair value. Narratives offer investors on Simply Wall St an easy and accessible way to put their research and opinions into action, using a community-driven platform built for millions of contributors.

With Narratives, you are empowered to see at a glance whether to consider buying or selling Zoetis by comparing your fair value to the current market price. These views update automatically as new company news or earnings are released, keeping your reasoning current and up to date.

For example, different Zoetis investors might have Narratives with fair values as high as $230, supported by strong innovation and market expansion assumptions, or as low as $153, reflecting concerns about regulatory risks and intensifying competition. This ability to craft, update, and compare Narratives lets you tailor your decisions to your own story, not just the numbers.

Do you think there's more to the story for Zoetis? Create your own Narrative to let the Community know!

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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