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Zoetis (ZTS) Thrives on Product Portfolio, Risks Persist

On Dec 29, 2016, we issued an updated research report on Parsippany, NJ-based Zoetis Inc.ZTS .

Zoetis is one of the leading global animal health companies focused on both livestock and companion animals. Shares of the company have outperformed the Zacks classified Medical - Drugs industry, year to date. In fact, the stock has gained 12.8% during this period, as against a decline of 25.1% for the industry.

The company's companion animal business has been performing well, driven by higher sales of Apoquel, new product launches including Simparica and recent additions to the vaccine portfolio. Zoetis projects the companion animal business to be the main growth driver in 2017. Meanwhile, it expects to see growth in the livestock business as it overcomes product rationalization impacts.

Zoetis has been working on strengthening its product portfolio through acquisitions and deals. In Aug 2016, it acquired a veterinary diagnostic focused company, Scandinavian Micro Biodevices, for $80 million. The acquisition should expand Zoetis' offerings in the growing veterinary diagnostics segment of the animal health market. Thus, we expect to see more of such acquisitions/deals at Zoetis as it continues to focus on the strategy of acquiring complementary businesses and products.

Meanwhile, it is focused on gross margin expansion and cost control. The company's comprehensive operational efficiency initiatives are expected to enerate cost savings of over $300 million by 2017 end.

The company is also working on returning value to shareholders in the form of share buybacks and dividends.

The company has consistently surpassed expectations in the four trailing quarters along with regular increases in guidance. At the time of announcing third-quarter 2016 results, Zoetis raised the earnings outlook for 2016 yet again, buoyed by a strong performance through the first nine months of the year, and continued strength in the company's business model.

Zoetis expects earnings in the range of $1.91 to $1.96 per share (old guidance: $1.86-$1.93). It also raised the lower end of its revenue guidance for 2016 to the range of $4.85 billion to $4.9 billion (old guidance: $4.8-$4.9 billion).

Zoetis also upped the lower end of both its earnings and revenue guidance for 2017. The company expects earnings in the range of $2.28 to $2.38 per share (old guidance: $2.24-$2.38) on revenues of $5.15 billion to $5.275 billion (old guidance: $5.075-$5.275 billion).

The increased outlook is seen as achievable on the back of a diversified product portfolio, streamlined infrastructure and prudent acquisitions.

The Zacks Rank #3 (Hold) stock has seen its earnings per share estimates for 2016 increase 3.2% to $1.95 and 0.4% to $2.35 for 2017, over the last 60 days. The company's expected growth rate is 10.2% and 20.5% for 2016 and 2017, respectively.

ZOETIS INC Price and Consensus

ZOETIS INC Price and Consensus | ZOETIS INC Quote

Despite the abovementioned positives, Zoetis has its own share of problems. While the performance of the livestock business is concerning, headwinds remain in the form of disease outbreaks and stiff competition in the animal health space.

Stocks to Consider

Some better-ranked stocks in this industry include Nivalis Therapeutics, Inc. NVLS , Sucampo Pharmaceuticals, Inc. SCMP and Akebia Therapeutics, Inc. AKBA . While Nivalis and Sucampo are Zacks Rank #1 (Strong Buy) stocks, Akebia carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

Nivalis' loss estimates narrowed from $2.29 to $2.08 for 2016 and from $2.64 to $1.81 for 2017, over the last 60 days.

Akebia's loss estimates narrowed from $4.07 to $0.39 for 2016 and from $3.73 to $1.13 for 2017, over the last 60 days.

Sucampo's earnings estimates increased from $1.03 to $1.22 for 2016 and from $1.30 to $1.74 for 2017, over the last 60 days. The company posted positive surprises in all of the four trailing quarters with an average beat of 35.55%.

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SUCAMPO PHARMAC (SCMP): Free Stock Analysis Report

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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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