Zoetis Inc. (ZTS): Assessing Long-Term Growth Amid Shifting Analyst Expectations

The veterinary pharmaceuticals sector has long been a cornerstone of resilient growth, driven by rising pet humanization and advancements in animal health. Zoetis Inc. (ZTS), a global leader in this space, has recently faced a recalibration of expectations as HSBC lowered its price target from $180 to $140 while maintaining a "Buy" rating. This adjustment, though reflecting a 22% reduction in the projected valuation, raises critical questions: Does the revised target still justify a "Buy" stance? And how do Zoetis's fundamentals align with the broader industry's trajectory?

Financial Performance: Resilience Amid Challenges

Zoetis's 2025 financial results underscore its operational resilience. For Q2 2025, the company reported revenue of $2.5 billion, a 4% year-over-year increase, while raising its full-year revenue guidance to $9.45–$9.6 billion. By Q3, total revenues reached $2.4 billion, with adjusted earnings per share (EPS) of $1.70, exceeding the Zacks Consensus Estimate. Despite a 9% decline in U.S. livestock product sales due to the divestiture of its medicated feed additive portfolio, Zoetis demonstrated strength in its companion animal segment, with products like Apoquel and Cytopoint driving 9% organic growth in the International segment.

Net income for Q3 2025 grew by 6% year-over-year to $721 million, or $1.63 per diluted share. These results highlight Zoetis's ability to adapt to structural shifts while maintaining profitability, a trait critical for sustaining investor confidence.

R&D Leadership and Innovation Pipeline

Zoetis's long-term growth is anchored in its disciplined R&D strategy. The company has secured key product approvals, including Revolution® Plus for notoedres mange in Australia and a conditional license for its Avian Influenza Vaccine in the U.S. Analysts project that Zoetis will generate $3.9 billion in free cash flow by 2035, up from $2.2 billion currently, underscoring the compounding effect of its innovation-driven approach.

The veterinary pharmaceuticals industry itself is poised for robust expansion, with a projected CAGR of 7.58% from 2025 to 2030, reaching $74.36 billion by 2030. Zoetis's focus on AI-powered diagnostics and DNA testing for pets further positions it to capitalize on trends like personalized veterinary medicine and telehealth adoption.

Market Position and Competitive Dynamics

Zoetis holds a dominant 9.57% market share in the Major Pharmaceutical Preparations industry as of Q3 2025 according to CSIMarket, though this reflects a slight decline from Q2. The company faces competition from Elanco Animal Health, Merck Animal Health, and Boehringer Ingelheim, which collectively control over 50% of the market. However, Zoetis's strategic acquisitions and partnerships-such as its expansion into biologics and preventive care-have fortified its competitive edge.

The U.S. companion animal health market, a key growth driver for Zoetis, is projected to grow at a CAGR of 9.87% through 2030, fueled by pet humanization and medicalization trends. Meanwhile, the veterinary oncology segment, expected to reach $3.55 billion by 2030 at a 14.01% CAGR, aligns with Zoetis's pipeline of immunotherapies and advanced diagnostics.

Analyst Sentiment and Valuation Metrics

Despite HSBC's lowered price target, broader analyst sentiment remains bullish. Zoetis has an average price target of $162.27 from FactSet analysts according to Marketscreener, with 12 analysts averaging $178.89-a 46% projected upside from its current price according to MarketBeat. Discounted cash flow analysis and price-to-earnings ratios suggest an intrinsic value with a 33.8% upside according to Yahoo Finance, reinforcing the argument that Zoetis is undervalued.

HSBC's "Buy" rating, while cautious, reflects a recalibration of near-term expectations rather than a fundamental reevaluation of Zoetis's long-term potential. The company's strong free cash flow generation, R&D pipeline, and alignment with high-growth industry segments justify continued optimism.

Conclusion: A "Buy" in a Transformative Sector

Zoetis's ability to navigate structural challenges-such as the MFA divestiture-while maintaining revenue growth and profitability underscores its operational discipline. The veterinary pharmaceuticals industry's projected expansion, coupled with Zoetis's leadership in innovation and market share, provides a compelling case for long-term investors. While HSBC's revised $140 target may appear conservative, it aligns with a broader consensus that Zoetis's intrinsic value and growth trajectory remain intact. For investors seeking exposure to a resilient sector with compounding innovation, Zoetis's "Buy" rating remains well-justified.