Why Zoetis Stock Has Lost 40% in 2022


what happened

share of Zoetis (ZTS 2.29%) Pet pharmacists were losing ground in 2022 as they saw headwinds related to the pet sector recession. A contraction in the valuation of growth stocks due to rising interest rates also caused investors to shift money to bonds and safer stocks.

According to data from S&P Global Market Intelligence, stocks ended 2022 down 40%. As you can see from the chart below, Zoetis tracks with most S&P 500 Over the years, however, it fell on a steep trajectory due to its high valuation.

^SPX Chart

^SPX data by YCharts.

so what

Most of the pet products sector underperformed last year after booming during the pandemic due to increased interest in pet spending and pet adoptions in the early months of Covid.

Zoetis delivered decent results in 2022, but growth was slower than investors expected.

In the third quarter, revenue rose just 1% to $2 billion, due to headwinds from a stronger dollar, and missed estimates by $2.08 billion. The company also reported a decline in earnings in Q3, with earnings per share (EPS) falling 3% to $1.13. It cut its guidance for the year in a November report, citing supply chain constraints, labor shortages and a strong dollar, calling for revenue from $8 billion to $8.075 billion, or just a 3% increase. It cut its earnings guidance again, calling for adjusted EPS of $4.83 to $4.90, down from a previous range of $4.97 to $5.05.

Despite sluggish top- and bottom-line growth, Zoetis gave investors reason to cheer at the end of the year, raising its quarterly dividend by 15% to $0.375 a share. “Joetis continues to perform well this year thanks to our diverse, sustainable product portfolio and global scale,” said CFO Weteni Joseph. He added that the company was well positioned to generate cash for future investment opportunities. Zoetis stock currently offers a 1% dividend yield.

what now

Macroheadwinds appear to be heading into 2023 as most economists expect a recession, but the good news for Zoetis is that the pet industry could be recession-proof as consumers demand pet products, including drugs, regardless of the state of the broader economy.

The stock still trades at a premium to the S&P 500 with a price-to-earnings ratio of 36, but its growth rate should improve once supply chain and labor shortages fade.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has posts and recommends Zoetis. Motley Fool has a revealing policy.


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