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Zoetis (ZTS) Up 13.1% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Zoetis (ZTS - Free Report) . Shares have added about 13.1% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Zoetis due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Zoetis Q1 Earnings Beat Estimates, Revenues In Line

Zoetis posted first-quarter 2020 adjusted earnings of $0.95 per share (excluding one-time items), which not only increased 7% year over year but also beat the Zacks Consensus Estimate of $0.87.

Total revenues rose 5% year over year to $1.5 billion, which meet the Zacks Consensus Estimate.

Quarterly Highlights

Zoetis reports business results under two geographical operating segments, namely the United States and International. It has a diverse portfolio of products for livestock and companion animals.

Revenues from the United States segment increased 9% year over year to $786 million. Sales of companion animal products in this region grew 12%, primarily owing to higher sales of Apoquel and Cytopoint brands in the dermatology portfolio. Simparica franchise including some initial stocks of the new triple combination parasiticide, Simparica Trio, also led to this increase. Moreover, sales of livestock products rose 5% in the quarter due to double-digit growth in both poultry and swine. However, point-of-care diagnostic business witnessed a downside and a decline in cattle products was the result of persistently unfavorable market conditions in beef and dairy sectors.

Revenues at the International segment inched up marginally 1% year over year on a reported basis (up 4% operationally) to $728 million. Livestock sales slipped 1% (down 2% operationally) in the quarter. Growth of cattle products was flat in the quarter. Notably, sales of swine products surged as a result of expanding herd production and beefed-up biosecurity measures in the wake of African Swine Fever in China. Alpha Flux, a recently-launched parasiticide, was the primary driver of growth in fish while price rises in Argentina, Mexico and Brazil fueled growth for poultry.

Sales of companion animal products grew 5% on a reported basis, reflecting a rise in the dermatology portfolio and parasiticide, Simparica franchise, including the launch of Simparica Trio in certain markets in the European Union (EU) as well as growth across key markets in China. Per the company, the COVID-19 pandemic left a minimal impact on Zoetis’ first-quarter results.

2020 Guidance

Due to the COVID-19 impact, Zoetis is lowering its full-year guidance.

The company now expects adjusted earnings of $3.17-$3.42 per share, indicating an improvement from the previous guidance of $3.90-$4.00. Revenues are now projected between $5.950 billion and $6.250 billion, the mid-point of which is $6.100 billion, lower than the Zacks Consensus Estimate of $6.450 billion. Revenues were earlier anticipated in the range of $6.650-$6.800 billion.

The guidance takes into account the foreign exchange rates of late April.

Other Updates

In February 2020, Zoetis announced that the FDA-approved Simparica Trio (sarolaner, moxidectin and pyrantel chewable tablets), the first once-monthly, chewable tablet in the United States that delivers all-in-one protection from heartworm disease, ticks and fleas, roundworms and hookworms.

Meanwhile, last month, Zoetis acquired Performance Livestock Analytics, a provider of cloud-based data management to beef producers, to enhance its animal health solutions across the continuum of care for beef producers.
 

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -25.27% due to these changes.

VGM Scores

Currently, Zoetis has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Zoetis has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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