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Zoetis (ZTS) Down 7.6% Since Last Earnings Report: Can It Rebound?

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Zacks Equity Research
·3 min read
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A month has gone by since the last earnings report for Zoetis (ZTS). Shares have lost about 7.6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Zoetis due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Zoetis' Q3 Earnings and Revenues Surpass Estimates

Zoetis posted third-quarter 2020 adjusted earnings of $1.10 per share (excluding one-time items), which was higher than the year-ago quarter’s earnings of 94 cents and beat the Zacks Consensus Estimate of 89 cents.

Total revenues grew 13% year over year to$1.8 billion, which beat the Zacks Consensus Estimate of $1.61 billion.

Quarterly Highlights

Zoetis reports business results under two geographical operating segments — the United States and International. It has a diverse portfolio of products for livestock and companion animals.

Revenues from the United States segment increased 18% year over year to $996 million. Sales of companion animal products in this region grew 21%, primarily owing to higher sales of the SimparicaTrio, the recently launched triple combination parasiticide for dogs. Apoquel and Cytopoint brands in the dermatology portfolio also led to this increase. Sales of livestock products increased 13% in the quarterdue to a return to historical buying patterns following the impact of COVID-19 in the second quarter of 2020.  U.S. cattle growth was partially offset by modest declines in both poultry and swine product portfolios.

Revenues inthe International segment increased 6% year over year on a reported basis (up 11% operationally) to $767 million. Livestock sales were flat in the quarter.Notably, sales of swine products surged as a result of expanding herd production and beefed-up biosecurity measures in the wake of the African Swine Fever in China. Sales of companion animal products grew 17% on a reported basis as a result of favorable market conditions and additional promotional and educational efforts. The Simparica franchise, including Simparica Trio, which was recently launched in the EU, Canada and Australia, and the company’s key dermatology portfolio across both Apoquel and Cytopoint brands led to the growth. Growth in the company’s fish portfolio was driven primarily by increased market share for salmon vaccines and the acquisition of Fish Vet Group.

2020 Guidance

Zoetis raised its 2020 guidance. The company now expects adjusted earnings of$3.76-$3.81per sharecompared with the previous guidance of $3.52-$3.68.

Revenues are now projected between $6.550 billion and $6.625 billion, raised from the previous range of $6.300-$6.475 billion.

 

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

VGM Scores

Currently, Zoetis has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Zoetis has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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