In the middle of June, billionaire Steven Cohen, who is managing more than $20.7 billion in total assets under management, significantly increased his holding in the veterinary pharmaceuticals maker Zoetis Inc (NYSE:ZTS), from 727,000 shares to more than 7.6 million shares. Interestingly, Zoetis is in the portfolios of many other famous investors including Paul Tudor Jones, George Soros, and Jean-Marie Eveillard.
Recently, Zoetis became a fully independent publicly traded company after a share exchange with its ex-parent Pfizer Inc. (NYSE:PFE). Let’s take a closer look to determine whether or not we should buy Zoetis at its current trading price.
A leading animal health company
Zoetis is the global manufacturer of more than 300 medicines and vaccines products for animals in 120 countries, operating in two main business segments: livestock and companion animal. Around $2.77 billion, or 66% of the total revenue, was generated from the livestock segment while the companion animal segment contributed around $1.43 billion in revenue.
Zoetis Inc (NYSE:ZTS) could be considered the largest company in animal medicines and vaccines in the world, with around $4.2 billion in revenue in 2011, holding 19% of the $22 billion global animal health market. Although most of Zoetis’ revenue, around 40%, was derived from the U.S. market, Zoetis also generated a lot of revenue from the emerging markets including China, India, Brazil, representing around 27% of its total revenue in 2011.
What might excite investors is the company’s good growth. In the first quarter of 2013, Zoetis Inc (NYSE:ZTS) experienced growth on both top and bottom lines. Revenue increased 4% to nearly $1.1 billion, while net income rose 26%, from $111 million in the first quarter last year to $140 million this year. Its EPS came in at $0.28 per share, 27% higher than the first quarter of 2012.
For the full year 2013, Zoetis expects to generate around $4.43 billion to $4.53 billion in revenue, with diluted EPS expected to stay in the range of $1.00 to $1.06 per share. The market seems to value Zoetis Inc (NYSE:ZTS) quite expensively, at 16.5 times its trailing EBITDA (Earnings before interest, taxes, depreciation, and amortization).
Compared to its much smaller publicly traded peers IDEXX Laboratories, Inc. (NASDAQ:IDXX) and VCA Antech Inc (NASDAQ:WOOF), Zoetis seems to be quite richly valued. IDEXX is trading at $90.30 per share with a total market cap of around $4.8 billion. The market values IDEXX at 15.4 times its trailing EBITDA. IDEXX’s main operating business segment is the companion animal group, delivering more than $1 billion in revenue and more than $203 million in profit in 2012.