Zoetis (ZTS)

Key Statistics

EV/EBIT = 26.25x

ROE = 44.5%

Debt/Equity = 145%

FCF Yield = 1.81%

Dividend Yield = 1.04%

Market Capitalization = $68.87 billion

The Company

Zoetis (ZTS) is the leading producer of vaccines and medicines for pets & livestock in the world.

The company is a spinoff of Pfizer. Back in the 1950s, Pfizer began researching animal drugs. An essential product that they developed was Oxytetracycline (an antibiotic) for livestock to prevent disease & infection in cattle and poultry populations. This division of the company was called Pfizer Animal Health.

Pfizer Animal Health gradually expanded its product portfolio over the years through research & development along with acquisitions. A critical acquisition occurred in 1995 when Pfizer bought out GlaxoSmithKline’s Norden Labs, which included drugs for domestic pets. Other acquisitions include Embrex, Bovigen, Vetnex Animal Health, Synbiotics, Mirkotek, and Alpharma.

By 2013, it was clear that this division was growing faster and providing higher capital returns than the rest of Pfizer's product portfolio. Pfizer opted to sell off the high performing division at a attractive price to raise capital and pay off debt.

The differences in valuation show that the spin-off was a much different company than the parent. Since 2013, Pfizer has traded at an average P/E of 18. Meanwhile, over the same period, Zoetis sold at a staggeringly high average P/E of 43x.