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What's in Store for Zoetis (ZTS) Stock This Earnings Season?

Zoetis Inc.ZTS is scheduled to report first-quarter 2017 results on May 4 before the market opens. In fact, the company has been seen to consistently beat earnings expectations. Zoetis' earnings surpassed expectations in each of the last four quarters, with an average positive surprise of 11.48%.

In the last reported quarter, the company topped expectations with a positive earnings surprise of 4.44%. Let's see how things are shaping up for this announcement.

Zoetis' share price movement year to date shows that the stock has outperformed the Zacks classified Medical-Drugs industry. The stock gained 5.0% compared with industry's gain of 4.9% during this period.

Factors to Consider

Zoetis derives the majority of its revenues from a diversified product portfolio of medicines and vaccines used to treat and protect livestock and companion animals. The company continues to strengthen its diverse portfolio of products through lifecycle innovations, strong customer relationships, and access to new markets and technologies.

Notably, the company's companion animal business has been performing well. It expects to see stronger growth from its companion animal portfolio in 2017 driven by its dermatology portfolio, Apoquel and Cytopoint, further penetration of Simparica, and ongoing uptake of new vaccines.

In May 2015, Zoetis had announced comprehensive operational efficiency initiatives that are expected to generate cost savings of more than $300 million by the end of 2017. These initiatives have focused on simplifying its product portfolio through the elimination of approximately 5,000 product stock keeping units, changing its selling approach in certain markets, reducing presence in certain countries, and the sale of/exit from 10 manufacturing sites over the long term.

As of December 31, 2016, the company has divested or exited three U.S. manufacturing sites, two international manufacturing sites, and its 55% ownership share of a Taiwan joint venture, inclusive of its related manufacturing site. The company eliminated about 1,800 positions and additional reductions are expected mainly over the next six months.

We are positive on Zoetis' acquisitions made so far. In Aug 2016, the company acquired Scandinavian Micro Biodevices - developer and manufacturer of microfluidic "lab on a chip" diagnostic analyzers and tests for veterinary point-of-care services - in a transaction valued at $80 million. This acquisition has added a suite of specialty test instruments and cartridges to Zoetis' complementary point-of-care diagnostics portfolio.

Also, the buyout has gained late- and mid-stage pipeline candidates that are expected to bring a range of new point-of-care analyzers and tests to market and contribute to several diagnostic product launches over the next few years in order to help veterinarians better detect, prevent and treat diseases.

In Apr 20-17, Zoetis entered into an agreement with Nexvet Biopharma under which Zoetis, through a wholly owned subsidiary will purchase the later. Nexvet is an innovator in monoclonal antibody therapies for companion animals. The purchase price for the deal is $85 million.

The acquisition is expected to strengthen Zoetis' pipeline of solutions for chronic pain management in dogs and cats, which represents an area of high-need in companion animal health.

However, Zoetis lowered its guidance for 2017 concurrent with its fourth-quarter results. Management expects revenue growth to be negatively impacted from product rationalization, especially in the first two quarters of the year. Other headwinds also include disease outbreaks and stiff competition in the animal health space.

Earnings Whispers

Our proven model does not conclusively show earnings beat for Zoetis this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, that is not the case here, as you will see below.

Zacks ESP: Earnings ESP for Zoetis is -2.04%. This is because the Most Accurate estimate is 48 cents, while the Zacks Consensus Estimate is pegged at 49 cents. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank: Zoetis carries a Zacks Rank #3, which when combined with a negative ESP makes surprise prediction difficult.

Note that we caution against Sell-rated stocks (Zacks Rank #4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Zoetis Inc. Price and EPS Surprise

Zoetis Inc. Price and EPS Surprise | Zoetis Inc. Quote

Stocks That Warrant a Look

Here are some health care stocks that you may want to consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter.

Gilead Sciences, Inc. GILD has an Earnings ESP of +2.77% and a Zacks Rank #3. The company is scheduled to release results on May 2. You can see the complete list of today's Zacks #1 Rank stocks here .

Ultragenyx Pharmaceutical Inc. RARE has an Earnings ESP of +0.59% and a Zacks Rank #3. The company is expected to release results on May 8.

Fibrogen Inc. FGEN has an Earnings ESP of +23.81% and a Zacks Rank #3. The company is expected to release results on May 8.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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