Zoetis Inc (ZTS)

Conclusion

Zoetis Inc. develops, manufactures and sells medicines, vaccines, diagnostics and precision animal health products, mainly for companion animals and livestock. The stock closed at 82.32 USD on 9 November 2026, giving a market capitalisation of 33.4 billion USD and an enterprise value of 41.2 billion USD.

The verdict is undervalued. Today's P/E of 13.5 sits 63.9% below its ten-year median of 37.2, and EV/EBITDA of 10.7 sits 54.3% below its median of 23.5. The discounted cash flow gives 111.50 USD per share, and the fair value band runs from 129.00 to 193.49 USD with a midpoint of 161.24 USD, a margin of safety of 95.9% at the current price. The reverse DCF implies revenue growth of 1.9% a year, while revenue actually grew at 7.2% a year over five years and free cash flow per share at 8.0%.

The strongest supports are a ROIC of 24.3% against a WACC of 7.8%, free cash flow conversion of 91.6% over the last twelve months, and interest coverage of 13.9x. The weakest numbers are net debt to EBITDA of 2.0x, a fall of 6.6% in next-year earnings estimates over 90 days, and a next-year growth estimate of only 2.1%.

Financial health

Financial strength is green, held up by a current ratio of 2.35, interest coverage of 13.9x and an Altman Z-score of 4.77 in the safe zone. Net debt to EBITDA of 2.0x and debt to equity of 2.80 are the main pressure points, as the company carries a meaningful debt load against its earnings and equity. The quick ratio is 1.20. The Altman model was built for manufacturers, and Zoetis operates as a manufacturer, so its zone reading applies directly. Insolvency risk: low, about 1.0% by the estimate of the Ohlson model over one to two years, as of 31 December 2025. The company's balance sheet supports its operations comfortably, though leverage is clearly above what would be considered conservative.

Earnings quality

Earnings quality is yellow, because cash conversion and buybacks are good but the accounting score and missing inputs hold it back. Free cash flow conversion is 91.6% over the last twelve months and 79.5% on a five-year average, and the accrual ratio is -1.6%, which suggests reported earnings are backed by cash. Stock-based compensation is 1.1% of revenue, and free cash flow after it is 2.18 billion USD. The share count has fallen at a compound rate of 1.5% over five years, which reflects net buybacks. The Piotroski score is 6 out of 9. The Beneish M-score is not available. The company beat earnings estimates in seven of the last eight quarters, with an average surprise of 5.1%. However, estimates have been cut: the current-year estimate is down 1.8% over 90 days, and the next-year estimate is down 6.6%, with six downward revisions against one upward in the last 30 days.

Profitability

Profitability is green, with every margin above its own ten-year median. The gross margin is 71.0% against a median of 67.3%, the operating margin is 36.3% against 35.0%, and the net margin is 26.2% against 25.4%. Operating margin has been stable, with a variation of 7.8% across years. Return on invested capital is 24.3% against a WACC of 7.8%, a ROIC minus WACC of 16.4%, which the model classifies as creating value. The five-year median ROIC is 27.1%. Return on equity is 75.3%, but the DuPont split shows that leverage does much of the work: a net margin of 28.2%, an asset turnover of 0.61 and an equity multiplier of 4.64. The high return on equity is therefore amplified by debt and should not be read on its own.

Growth

Growth is green, driven mainly by earnings per share and a perfect record of revenue increases. Revenue has compounded at 5.4% over three years, 7.2% over five years and 7.1% over ten years. Earnings per share compounded at 10.3% over three years, 12.0% over five years and 24.5% over ten years. Free cash flow per share grew at 22.2% over three years, 8.0% over five years and 19.4% over ten years. Revenue grew in all ten of the last ten years. The forward view is weaker: the next-year growth estimate for earnings is 2.1%, which is well below the historical rates above. The growth record is strong, but the near-term consensus expects a sharp slowdown.

Valuation

Valuation is green, with the verdict undervalued and a margin of safety of 95.9%. Today's multiples are well below their ten-year medians: P/E 13.5 against 37.2, a premium of -63.9%; EV/EBITDA 10.7 against 23.5, -54.3%; price to free cash flow 14.7 against 49.9, -70.6%; price to sales 3.5 against 9.0, -61.0%; and price to book 10.1 against 19.6, -48.2%. The discounted cash flow gives 111.50 USD per share, using a discount rate of 8.9%. The fair value from historical multiples is 210.98 USD. The fair value band of 129.00 to 193.49 USD is an order-of-magnitude estimate built on fixed assumptions, including a 5% equity risk premium and capped growth, and is not a price target. The reverse DCF implies growth of 1.9%, against a five-year revenue growth of 7.2% and free cash flow per share growth of 8.0%. The dividend yield is 2.65%, with a payout of 38.9% of free cash flow.

Risks

The main risk is the leverage. Net debt to EBITDA of 2.0x and debt to equity of 2.80 leave less room to absorb a fall in earnings or a rise in borrowing costs, and the return on equity of 75.3% is partly a product of this debt. The second risk is the near-term outlook: the next-year earnings estimate is down 6.6% over 90 days with the next-year growth estimate at 2.1%, so the reverse DCF's implied growth of 1.9% may be closer to consensus than the five-year record suggests. A third risk is the dependence on the discounted cash flow, where the terminal value accounts for 57.3% of the value. The Beneish M-score is not available. This analysis does not include a debt maturity schedule or revenue by segment, so refinancing risk and the exposure of individual product lines cannot be assessed.