Contrarian Investment: Why Zoetis Stock Deserves Attention

As a contrarian investor, I focus on high-quality companies that have temporarily fallen out of favor. Zoetis is one such company whose share price has stagnated despite its strong earnings performance. As a former Bloomberg finance expert, I believe Zoetis is a solid investment opportunity due to its diversified product portfolio, solid financials, and consistent earnings growth.

Title: Zoetis: A Contrarian Investment Opportunity in Animal Health

As a contrarian investor, I focus on high-quality companies that have temporarily fallen out of favor. Zoetis (NYSE: ZTS) is one such company whose share price has stagnated despite its strong earnings performance. Zoetis, the market leader in the animal health products niche, possesses a strong and patent-protected portfolio of blockbuster drugs and benefits from several long-term trends.

# Recent Developments

The Q2 figures published on August 5 showed no reason for negative conclusions. Adjusted for currency effects and the sale of the medicated feed additives business, Zoetis reported an 8% increase in revenue and a 15% increase in earnings. The Companion Animal segment outperformed the Livestock segment with currency-adjusted growth of 8%, while the Livestock segment was impacted by a slight 2% decline in the U.S. market due to temporary supply and timing effects. The osteoarthritis drug Librela, which generated $145 million in Q2, posted 16% less revenue in the U.S. market due to side effects. Zoetis is countering this with an educational campaign and third-party studies, with results expected by year-end.

# Business Model

Zoetis generates 68% of its revenues from companion animal health, making it the global leader in this segment. The company focuses on parasiticides, vaccines, dermatology products, anti-infectives, pain and sedation drugs, oncology products, and diagnostics specifically for animals. Zoetis also offers digital tools such as an AI-based forecasting tool to predict potential disease outbreaks in fish farms. The company's key franchises, including Simparica and Simparica Trio (parasiticides), Apoquel/Cytopoint (dermatology), and Librela/Solensia (osteoarthritis pain), generated 41% of FY 2024 revenue.

# Market and Growth Prospects

The global companion animal market is projected to grow with a CAGR of 6.6% between 2023 and 2030, driven by increasing pet numbers and premiumization of pet food. The veterinary medicine market is forecast to grow with a CAGR of 8.5% between 2025 and 2030, driven by rising pet health spending and longer pet lifespans. Zoetis aims to expand its companion animal share to 70% of revenue by 2028.

# Financials and Valuation

Zoetis's strong financial performance is evident in its gross margin, which stood at 70.6% in 2024, compared to 54.9% for competitor Elanco. The company's net debt of $5.1 billion at the end of Q2 2025 is easily repayable relative to its earnings. Zoetis's consistent earnings growth and strong balance sheet make it an attractive investment opportunity.

# Conclusion

Zoetis is a solid investment opportunity for contrarian investors. Its diversified product portfolio, solid financials, and consistent earnings growth make it a strong candidate for long-term investment. Despite recent setbacks, Zoetis's strong market position and growth prospects make it a compelling choice for investors seeking high-quality companies that have temporarily fallen out of favor.

# References

[1] https://seekingalpha.com/article/4816365-zoetis-why-i-decided-to-invest-in-stock