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Zoetis Inc Class A ZTS

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Animal Healthcare Is Barking Up the Right Tree, but Valuations Remain High

Debbie S. Wang Senior Equity Analyst

Analyst Note

| Debbie S. Wang |

Amid much media attention and anecdotal evidence suggesting widespread, significant growth in pet adoptions across the United States during the pandemic, we took a closer look and estimate there was a 13% net increase in dog adoptions in 2020 year over year, based on consolidated shelter data and American Kennel Club records. It is less clear what the rise in cat adoptions was, as there is simply less reliable data for cats. Nonetheless, we think this increase in adoptions, along with the extended period of intense pet bonding for new and existing pet owners during the pandemic, should support the robust increase in pet healthcare spending seen initially in 2020 to extend over the next eight to 10 years, reflecting the general lifespan of newly adopted pets. While we have dialed up our cash flow projections for narrow-moat Idexx Laboratories and wide-moat Zoetis, their share prices remain rich and imply wildly optimistic expectations.

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Company Profile

Business Description

Zoetis sells anti-infectives, vaccines, parasiticides, diagnostics, and other health products for animals. The firm earns slightly less than half of total revenue from production animals (cattle, pigs, poultry, and so on), and more than half from companion animal (dogs, horses, cats) products make up the other half. Its U.S. business is heavily skewed toward companion animals, while its international business is slightly skewed toward production animals. The firm has the largest market share in the industry and was previously Pfizer's animal health unit.

10 Sylvan Way
Parsippany, NJ, 07054
T +1 973 822-7000
Sector Healthcare
Industry Drug Manufacturers - Specialty & Generic
Most Recent Earnings Jun 30, 2021
Fiscal Year End Dec 31, 2021
Stock Type Classic Growth
Employees 11,300