Zoetis: Buy When There Is Blood In The Streets

Zoetis has long been viewed as a high-quality compounder. However, after reaching an all-time high of $249.27 in December 2021, the stock is now caught in a ~70% drawdown. This can be primarily attributed to the dismal performance of the company's crown jewel asset, namely the U.S. companion animal business. After delivering an impressive 25% organic growth during the full year of 2021, the U.S. companion animal business reported dismal performance in Q1-26, with an organic decline of 11%. In addition to the declining health of the average U.S. consumer, management noted heightened competitive pressure from the introduction of both new products and generics. Zoetis is now trading at a free cash flow yield of ~7.3%, which is by far the highest since the company's IPO in February 2013. Organic growth for the full year of 2026 is now expected between 2.0% and 5.0%.

Similar to many other companies I have previously covered, Zoetis (ZTS) is another former market darling now finding itself in the penalty box.