Zoetis Inc.’s (NYSE:ZTS) most recent earnings announcement in December 2018 confirmed that the business experienced a strong tailwind, leading to a high double-digit earnings growth of 65%. Below is a brief commentary on my key takeaways on how market analysts view Zoetis’s earnings growth outlook over the next couple of years and whether the future looks even brighter than the past. I will be looking at earnings excluding extraordinary items to exclude one-off activities to get a better understanding of the underlying drivers of earnings.
Market analysts’ consensus outlook for next year seems rather muted, with earnings rising by a single digit 2.2%. The growth outlook in the following year seems much more buoyant with rates generating double digit 19% compared to today’s earnings, and finally hitting US$2.0b by 2022.
Even though it’s helpful to be aware of the growth each year relative to today’s level, it may be more beneficial analyzing the rate at which the business is moving on average every year. The benefit of this technique is that we can get a better picture of the direction of Zoetis’s earnings trajectory over the long run, irrespective of near term fluctuations, which may be more relevant for long term investors. To calculate this rate, I’ve appended a line of best fit through the forecasted earnings by market analysts. The slope of this line is the rate of earnings growth, which in this case is 11%. This means, we can anticipate Zoetis will grow its earnings by 11% every year for the next few years.
For Zoetis, I’ve put together three fundamental factors you should look at:
- Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- Valuation: What is ZTS worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether ZTS is currently mispriced by the market.
- Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of ZTS? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
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If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.