Zoetis and the Re-Rating Potential in Veterinary Biopharma: Unlocking Undervalued Growth

The veterinary biopharma sector, long overshadowed by its human healthcare counterparts, is now emerging as a compelling arena for value creation. Zoetis Inc. (ZTS), a global leader in animal health, finds itself at a pivotal juncture. With a price-to-earnings (P/E) ratio of 22.93 as of September 24, 2025Zoetis PE Ratio 2011-2025 | ZTS - Macrotrends^[1], and a price-to-earnings-to-growth (PEG) ratio of 1.78Zoetis (ZTS) PEG Ratio Chart - ZTS Stock Price to Earnings Growth^[2], the company's valuation appears to diverge from both its historical trends and broader industry benchmarks. This divergence, coupled with structural growth drivers in the sector, suggests a re-rating may be on the horizon.

Zoetis' Financial Metrics: A Tale of Contradictions

Zoetis' PEG ratio of 1.78, calculated using a forward-looking earnings-per-share (EPS) growth rate of 13.70% over the past 12 monthsZoetis (ZTS) PEG Ratio Chart - ZTS Stock Price to Earnings Growth^[2], is markedly lower than its 3-year average of 3.73 and its 12-month average of 3.07Zoetis (ZTS) PEG Ratio Chart - ZTS Stock Price to Earnings Growth^[2]. This compression in valuation multiples could signal either a recalibration of investor expectations or an undervaluation of the company's growth prospects. By comparison, the biotechnology industry's PEG ratio for 2025 stands at 11.39PEG Ratio by Industry 2025 - Eqvista^[3], reflecting the sector's premium for innovation and high-growth potential. While veterinary biopharma is not biotechnology, the two are inextricably linked through drug development pipelines and R&D synergies. Zoetis' PEG ratio, therefore, appears unusually modest in this context.

Sector Dynamics: A Market on the Rise

The veterinary biopharma sector is poised for sustained expansion. By 2025, the market is valued at USD 25,980.22 million, driven by rising pet ownership, intensifying demand for livestock health solutions, and advancements in animal healthcare productsVeterinary Pharmaceutical Drug Market S…^[4]. Companion animals alone account for 55% of the marketVeterinary Pharmaceutical Drug Market S…^[4], underscoring the sector's shift toward premium pet care. Oral medications and injectables dominate the therapeutic landscape, with injections capturing 45% of the marketVeterinary Pharmaceutical Drug Market S…^[4], a segment where Zoetis has historically excelled.

Yet, the sector is not without headwinds. Negative invoice growth and macroeconomic uncertainties have dampened short-term optimismQ1 2025 Veterinary Market Update | Practice …^[5]. However, practice valuations remain resilient, with larger veterinary practices commanding EBITDA multiples of 12–15x in Q1 2025Q1 2025 Veterinary Market Update | Practice …^[5]. This suggests that while operational challenges persist, the underlying value proposition of the sector remains intact.

Zoetis' Competitive Position: A Dominant Player in a Concentrated Market

Zoetis' market leadership is both broad and deep. It holds a 14.21% share of the global veterinary vaccines market$26.9 Bn Veterinary Vaccines Market Opportunities and Strategies to 2033 - Zoetis Leads Highly Concentrated Market^[6], the largest among competitors, with the top ten firms collectively controlling 55.36% of the market$26.9 Bn Veterinary Vaccines Market Opportunities and Strategies to 2033 - Zoetis Leads Highly Concentrated Market^[6]. Its dominance extends to the broader animal health sector, where it commands over one-sixth of the global market$26.9 Bn Veterinary Vaccines Market Opportunities and Strategies to 2033 - Zoetis Leads Highly Concentrated Market^[6]. This concentration of market power, combined with a robust product portfolio spanning vaccines, diagnostics, and therapeutics, positions Zoetis to capitalize on secular trends such as zoonotic disease preparedness and sustainable livestock management.

Unlocking Value: A Case for Re-Rating

The case for Zoetis' re-rating hinges on three pillars:
1. Undervalued Growth: A PEG ratio of 1.78 implies that investors are pricing in only 13.70% EPS growthZoetis (ZTS) PEG Ratio Chart - ZTS Stock Price to Earnings Growth^[2], despite the company's entrenched market position and exposure to high-growth segments like companion animal care. If Zoetis can sustain or accelerate its growth trajectory, the current valuation multiple could expand.
2. Sector Rebalancing: As veterinary biopharma gains recognition as a critical component of global health infrastructure, capital flows may shift toward the sector. Zoetis' leadership role could attract investors seeking exposure to this niche.
3. Margin Resilience: Despite macroeconomic pressures, Zoetis' pricing power in vaccines and injectables—segments with high barriers to entry—suggests durable margins. This resilience could insulate the company from broader market volatility.

Risks and Considerations

No re-rating thesis is without risks. The veterinary sector's reliance on discretionary spending (e.g., pet care) makes it vulnerable to economic downturnsQ1 2025 Veterinary Market Update | Practice …^[5]. Additionally, regulatory shifts in agricultural practices or animal welfare standards could disrupt demand for livestock-related products. Zoetis must also navigate R&D challenges, as the development of novel vaccines and therapeutics is inherently uncertain.

Conclusion: A Strategic Bet on Structural Trends

Zoetis' current valuation appears to understate its long-term potential. While the company's PEG ratio is lower than historical averages, the veterinary biopharma sector is entering a phase of structural growth. For investors, the key question is whether Zoetis can leverage its market leadership to outperform sector-wide headwinds. If it can, the re-rating of its shares may be not just plausible but inevitable.