Zoetis Earnings: Strong Growth Is Likely to Continue, but Few Surprises Mean That Our FVE Unchanged

Zoetis posted a second-quarter performance that reflected ongoing strength in its companion-animal business. Though we’ve slightly adjusted our assumptions for the full year to reflect incrementally lower manufacturing, and sales and marketing expense, this wasn’t enough to materially move our fair value estimate. Another quarter of strength from Zoetis underscores the firm’s wide economic moat, in our view. The company’s novel companion-animal products have translated into robust adoption cycles that can be maintained over years. For example, its US dermatology franchise grew 17% in the quarter, though Apoquel and Cytopoint have been on the market since 2013 and 2016, respectively. Zoetis has deftly managed product life cycles with the introduction of chewable Apoquel last year, just ahead of the anticipated launch of Elanco’s competitive Zenrelia therapy in 2024. As it happens, Zenrelia is likely to be launched with a black box warning in late 2024, which, we think, should keep vets in the Apoquel camp.