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The latest earnings announcement Zoetis Inc. (NYSE:ZTS) released in December 2018 confirmed that the business gained from a sizeable 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 using net income excluding extraordinary items in order to exclude one-off volatility which I am not interested in.
Analysts' expectations for next year seems rather muted, with earnings expanding 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.
Although it is useful to understand the growth year by year relative to today’s value, it may be more valuable analyzing the rate at which the company is growing on average every year. The pro of this technique is that it ignores near term flucuations and accounts for the overarching direction of Zoetis's earnings trajectory over time, which may be more relevant for long term investors. To compute this rate, I put a line of best fit through analyst consensus of forecasted earnings. The slope of this line is the rate of earnings growth, which in this case is 11%. This means that, we can presume Zoetis will grow its earnings by 11% every year for the next few years.
For Zoetis, I've compiled three essential aspects you should further research:
- 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!
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.