Key Takeaways:
Share price: $172 Target Price: $182 NEW (from $177)
Position size: 2.36% TTM return: +46%
- Impressive sales growth of 15% (ex-FX):
- + 18% in the US, driven by demand +21% in companion animals products (paraciticides, vaccines and dermatology products), and +13% in livestock products (rebound from Covid restrictions)
- Market share gain in paraciticides (+6% share) thanks to Simparicia Trio introduction this year – and cannibalization below expected levels. The Trio offering is attarcting new customers.
- +11% in International sales (ex-FX), with companion animal sales +20% (strong growth in China) and +6% livestock sales
- Simparica Trio will continue to be a driver to growth going forward, with heavy investments behind it to gain market share ahead of a competitive launch sometime next year.
- Potential launch in 1H2021 in Europe of the first injectable monoclonal antibody licensed for alleviation of pain associated with osteoarthritis in dogs.
- In Q3, there wasn’t an increased number of vet visits, but rather an increase in spending per visit, a positive trend that will continue as long as people spend more time at home with their pet.
- There is also an increased use of diagnostics – a good thing as they recently acquired a diagnostics company
- Guidance for the year increased on good Q3 results, but Q4 is expected to be more moderate
- CEO quote: “animal health is a steady and reliable sector, even in times of economic hardship. The world’s fundamental need for nutrition, comfort and companionship, provided by animals, has proven durable and enduring over time”.
Updated guidance for 2020:
Revenue guidance increased now +7% to +8% (prior 3%-6%) due to better 3Q results than expected
EPS now $3.76-$3.81 from prior $3.52-$3.68
Zoetis investment thesis:
- · Attractive industry profile: mid-single-digit growth rate, little generic threat, cash payers, pet sub-sector is very fragmented
- · ZTS is a leading diversified animal pharma company that continues to innovate to fulfill unmet animal needs
- · ZTS is growing above the industry rate and has proven resilient throughout economic cycle
- · Experienced management team has proven successful in increasing revenue and margins since the IPO in 2013
- · Good capital allocation strategy: M&A and capex spending have lifted sales and improved profitability