Zoetis Inc. (ZTS): A Bull Case Theory

We came across a bullish thesis on Zoetis Inc. (ZTS) on Best Anchor Stocks’ Substack. In this article, we will summarize the bulls’ thesis on ZTS. Zoetis Inc. (ZTS)’s share was trading at $161.97 as of 22^nd May. ZTS’s trailing and forward P/E were 29.08 and 26.18 respectively according to Yahoo Finance.

Zoetis (ZTS) reported mixed earnings that triggered a 5% sell-off, though the stock partially recovered the next day. While headline numbers were not disastrous, underlying concerns justified the reaction. Operational revenue grew 9%, but reported revenue rose just 1% due to FX headwinds and the recent divestiture of the low-margin MFA business, which ironically improved margins—gross margin expanded by 140 bps and operating margin by 150 bps. The company’s capital return strategy remains robust, with buybacks accounting for 83% of free cash flow over the past year and a 2.4% year-over-year reduction in share count, boosting EPS growth above net income.

Despite this, organic growth decelerated slightly, largely due to weaker-than-expected adoption of Librela, Zoetis’ osteoarthritis pain monoclonal antibody. Though Librela posted 17% U.S. growth, management acknowledged slow uptake from poor awareness and macro pressures, leading to a downward revision of operational net income guidance. This is troubling, given Librela’s previously expected outsized contribution to future growth and margins. However, Zoetis unveiled a new, long-acting OA pain MAB in the pipeline—administered quarterly, with fewer side effects and a distinct brand—which could reset the narrative if approved in late 2025.

Meanwhile, core franchises in parasiticides and dermatology (Simparica and Apoquel) continue to post double-digit growth despite rising competition. The shift toward retail, now 21% of U.S. sales, enhances reach but slightly dilutes the vet-driven moat. Ultimately, while near-term execution challenges around Librela weigh on sentiment, Zoetis’ market leadership, innovation pipeline, and structural tailwinds support a favorable long-term outlook.

We have previously covered Zoetis Inc. (ZTS) in December 2024 wherein we summarized a bull thesis by Business Model Mastery on Substack. The author highlighted Zoetis (ZTS) as a top play on the booming pet care market. Since then, the company has delivered strong Q3 results, led by blockbuster osteoarthritis and dermatology treatments, retail expansion, and global growth. With rising chronic care demand and diagnostics adoption, ZTS remains a long-term compounder.

Zoetis Inc. (ZTS) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 76 hedge fund portfolios held ZTS at the end of the fourth quarter which was 62 in the previous quarter. While we acknowledge the risk and potential of ZTS as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ZTS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article was originally published at Insider Monkey.