Animal Health-Focused Zoetis Stock Faces Near-Term Pressure, Analyst Cites Uncertainty In Q4 Results, Weak Margins

On Tuesday, Zoetis Inc ZTS reported fourth-quarter 2023 revenue of $2.21 billion, up 8% Y/Y, on both a reported and operational basis, almost in-line with the consensus of $2.19 billion.

Net income for the fourth quarter of 2023 was $525 million, or $1.14 per diluted share, an increase of 14% and 15%, respectively, on a reported basis.

Adjusted net income for the fourth quarter of 2023 was $569 million, or $1.24 per diluted share, an increase of 6% and 8%, respectively, on a reported and operational basis, missing the consensus of $1.32.

Revenue in the U.S. segment was $1.2 billion, up 9%. Sales of companion animal products increased by 10%, driven by the company’s monoclonal antibody products for osteoarthritis pain, Librela for dogs and Solensia for cats, as well as the company’s flea, tick, and heartworm combination product for dogs, Simparica Trio.

Guidance: Zoetis forecasts fiscal year 2024 revenue of $9.075 billion-$9.225 billion, representing an operational growth of 7%-9%, versus the consensus of $9.21 billion.

The animal health-focused Zoetis sees 2024 adjusted diluted EPS of $5.74-$5.84 versus the consensus of $5.99.

William Blair remains optimistic about Zoetis’s growth prospects beyond 2024, particularly with the significant multiyear product launch of Librela. 

The company’s innovative pipeline and effective product cycle management are expected to contribute to sustained EPS growth, with potential additional upside based on factors such as the adoption rate of Librela and the impact of future competition. 

However, the recent fourth-quarter results, particularly in the companion animal segment and weak margins, may spark discussions about Zoetis’s underlying fundamentals. 

This uncertainty could temporarily limit the stock’s near-term upside until more clarity and execution are observed. William Blair maintains an Outperform rating on Zoetis.

Price Action: ZTS shares are down 5.83% at $185.23 on the last check Tuesday.

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