The investment case for Zoetis Inc. (NYSE:ZTS) has changed significantly since declining demand in its U.S. companion-animal business has put pressure on earnings forecasts and affected the price of its shares. As a company in the animal health sector, Zoetis produces medicines, vaccines, and diagnostic products for both pets and livestock, and the wide range of its product offerings provides long-term growth possibilities. However, because management has revised its 2026 earnings forecast, investors now have to decide whether the stock’s lower forward P/E indicates an attractive place to buy the shares or suggests a more conservative view of future growth.
The collapse in the share price has also changed Zoetis’ valuation considerably. The stock is down over 45% in the past 12 months. Yahoo Finance currently reports a forward P/E of approximately 12.0x, compared with 21.69x as of September 30, 2025, which makes the stock look substantially cheaper than it did a year ago.
However, the lower multiple is not occurring in isolation, as the company has also materially reduced its 2026 earnings expectations. Zoetis has dramatically underperformed the market, but other stocks in the sector haven’t. We made a list of the best healthcare stocks to buy according to hedge funds. Check out the complete list here to make an informed decision.
The Earnings Outlook Has Weakened
We meticulously crafted a list of the 7 Best Pharma Stocks to Invest In Now. Access the complete list here. Zoetis Inc. (NYSE:ZTS) reported second-quarter 2026 revenue of $2.5 billion, essentially flat from a year earlier, while adjusted diluted EPS was $1.87. On an organic operational basis, however, revenue declined 1% and adjusted net income declined 2%.
The company’s full-year outlook shows why the market has become more cautious. Zoetis now expects 2026 revenue of $9.12 billion to $9.32 billion, corresponding to organic operational revenue growth of (3)% to (1)%. Adjusted diluted EPS is expected at $6.15 to $6.25, and the company also revised its full-year 2026 adjusted net income guidance to organic operational growth of (9)% to (5)%.
That is a significant change from the company’s May outlook, when Zoetis was expecting revenue of $9.68 billion to $9.96 billion and adjusted EPS of $6.85 to $7.00. But before we dive further into the investment story, take a look at our recently published article on Zoetis Earnings Reveal a Divided Business, But Can its Pipeline Restore Growth? for more insight.
Companion-Animal Weakness Is the Main Problem
The pressure is concentrated in one of Zoetis’ most important markets. U.S. revenue declined 7% in the second quarter, with companion-animal product sales falling 11%. Zoetis said lower clinic visits, pet-owner price sensitivity, and heightened competition affected several products, while generic competition also weighed on Cerenia and Convenia.
There are, however, areas of resilience. U.S. sales of livestock products increased 23%, supported by cattle and poultry, while international revenue rose 8% on a reported basis and 6% organically. International companion-animal product sales increased 5% organically.
These trends are significant for investors to note to ensure that Zoetis is not essentially facing a company-wide collapse. Instead, the problem is that weakness in the U.S. companion-animal business is offsetting growth elsewhere. We talked about ZTS’s bear case and U.S. business in detail in our insightful article on Zoetis Wins Emergency Authorization for Simparica Trio, Can It Support a Slowing U.S. Business?. Read the full analysis here.
The Pipeline Could Help, but Growth Will Take Time
Zoetis still has significant opportunities to rebuild growth. The company says its pipeline contains more than 12 potential blockbuster candidates, including programs targeting chronic kidney disease, oncology, cardiology, anxiety and obesity.
The company is also expanding its diagnostics business and completed the acquisition of VitalRADS, a veterinary teleradiology platform, in July. Zoetis said the acquisition is intended to expand its Global Diagnostics offering into veterinary imaging interpretation.
Its response to the New World screwworm threat provides another example of its existing portfolio becoming strategically relevant. Dectomax-CA1 received FDA conditional approval for prevention and treatment of screwworm myiasis in beef cattle, while Zoetis also received emergency-use authorization covering several other animal species.
Does 12x Earnings Make the Stock Attractive?
At roughly 12x forward earnings, Zoetis Inc. (NYSE:ZTS) is considerably cheaper than it was a year ago. But the market has a reasonable explanation for that discount, which is that management currently expects organic revenue and adjusted earnings to decline in 2026.
The investment case therefore depends on whether the current weakness is temporary or represents a more lasting deterioration in the companion-animal market. If clinic visits, pet-owner spending, and demand for Zoetis’ products recover, the current valuation could leave room for earnings growth to regain momentum. If those pressures persist, however, the stock’s low multiple may be justified.
At this point, 12x forward earnings looks materially less demanding, but not automatically cheap. The valuation has changed dramatically, and the next question is whether Zoetis can stabilize the business enough to make that lower multiple meaningful.
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This article is originally published at Insider Monkey.
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