Does Zoetis Present an Opportunity After Its 22% Drop in the Past Year?

Trying to figure out your next move with Zoetis stock? You’re definitely not alone. Investors have been watching this name closely, especially as the company’s share price has taken them on a bit of a ride lately. Over the past week, the stock climbed 3.8%, hinting at some renewed optimism, while the last month still saw it dip 4.2%. If you zoom out, it becomes even more clear that Zoetis has been through a rough patch, dropping nearly 10% year-to-date and down more than 22% over the past year.

Much of this volatility can be traced back to shifting investor sentiment around animal health demand and broader market rotations out of defensives. While there have not been any seismic shifts in Zoetis’s core business, many in the market are wondering if the company is now starting to look undervalued, or if this downtrend signals deeper concerns still to play out.

Looking specifically at valuation, Zoetis scores a 2 out of 6 on our quick-check scale for undervalued stocks. That means it meets two of the six checks we look for to call a company undervalued, which is not exactly a slam dunk but not the priciest play in the sector either.

So how does Zoetis really stack up if you dig deeper? In the next section, we will walk through several common valuation approaches, weighing the pros and cons of each. And if you are looking for a smarter, more reliable way to judge Zoetis’s worth, stay tuned as we will get to that at the end.

Zoetis scores just 2/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Zoetis Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates a company’s true value based on its expected future cash flows by projecting those numbers into the future and then discounting them to today’s dollars, reflecting the time value of money. In short, it helps investors determine what a business might actually be worth, beyond its current market valuation.

For Zoetis, current Free Cash Flow (FCF) stands at $2.21 billion. Looking ahead, analysts project annual growth, with FCF expected to rise to $3.29 billion by 2029. For years beyond the next five, future cash flows are extrapolated, showing steady increases. These projections incorporate multiple analyst estimates when available and then apply conservative growth rates for subsequent years.

After processing all these numbers, the DCF model assigns Zoetis an intrinsic value of $179.08 per share. This represents an 18.2% discount compared to its current share price, suggesting the stock is notably undervalued based on anticipated cash flows.

Result: UNDERVALUED

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

Our Discounted Cash Flow (DCF) analysis suggests Zoetis is undervalued by 18.2%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

Approach 2: Zoetis Price vs Earnings (P/E Ratio)

The Price-to-Earnings (P/E) ratio is a popular metric for valuing profitable companies like Zoetis because it gives a quick sense of how much investors are paying for each dollar of the company’s earnings. Since Zoetis consistently generates strong profits, the P/E ratio is a logical gauge for its valuation.

What is considered a “fair” P/E ratio depends on growth expectations and risk. Rapidly expanding or more stable companies often command higher P/Es, while those with slow growth or high risk usually see lower multiples. For Zoetis, the current P/E sits at 24.86x. That is above the pharmaceuticals industry average of 19.77x and the average of its direct peers at 15.47x, suggesting the market is tacking a premium onto Zoetis’s future prospects.

Simply Wall St’s "Fair Ratio" takes this a step further. Unlike a basic peer or industry comparison, the Fair Ratio blends in several factors such as Zoetis’s expected earnings growth, profit margins, risk profile, industry, and market capitalization. For Zoetis, the Fair Ratio is calculated at 21.56x. By comparing this to the stock’s current P/E of 24.86x, it is clear the shares are trading above what would be justified by fundamentals alone, indicating the stock is a bit expensive on this measure.

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

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives. A Narrative is your own story behind the numbers. It is where you connect your view of Zoetis, including assumptions about future revenue, earnings, and margins, to a valuation forecast and a fair value for the company.

Instead of just focusing on static metrics, Narratives help you map out how you think Zoetis’s business will perform, and see those expectations instantly translated into financial forecasts and a Fair Value estimate.

Narratives are designed to be easy and accessible, and you can explore or create them for any stock on Simply Wall St’s Community page. Millions of investors use these to track, debate, and refine their investment approaches in real time.

With a Narrative, you can quickly see if your estimated Fair Value is above or below today’s share price, making buy or sell decisions much more informed and personalized. Plus, Narratives update automatically when news or earnings change the outlook, so you are never left using outdated assumptions.

For example, some investors believe Zoetis’s global market expansion and product innovation justify a Fair Value as high as $230 per share, while others see tougher competition and regulatory risks pointing toward a more cautious $153 per share. This shows just how different and actionable each story can be.

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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