Value Investing with Sven Carlin, Ph.D. on $ZTS (Oct 29, 2026)
ZTS looks an interesting value investment: at a P/E of 12, high ROIC, profitable margins despite a slight revenue outlook cut, and about $2B annual cash flow against $42B market value funding buybacks/dividends. The veterinary pharma oligopoly is expected to grow 10.73%; conservative 7% growth plus buybacks/dividends gives roughly 12% total return, accepted with pharma volatility and company uncertainty on US market stabilization. Michael Perry's 15%-for-15-years view is cited, but the speaker does not adopt it, concluding ZTS is very interesting and separate from the AI bubble.
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I received many questions about Zoetis, a veterinary pharmaceutical company. Of course, when there are many comments, it means that the stock is low, and this stock is significantly low.
Moreover, Michael Perry sees it as a golden investment opportunity, implying potential returns of 15% annually for the next fifteen years. This means that your investment doubles after five years, then after ten years, and then doubles again. That is equivalent to 8 times the capital.
Therefore, studying the risks and returns here is very interesting. In the short term, he also sees it as an opportunity to shift towards value as the AI boom turns into a recession, and money flows into higher-value companies.
They repurchased convertible shares at 120, spending a lot of money, but Perry says they are still valuable.
The company says it does not know when the US markets will stabilize, whether in 6, 12 or 18 months. This is something Wall Street hates: uncertainty.
However, there are share buybacks and dividend distributions. Perry also looks at trading volume and the amount of shares traded. So, those growth speculators who bought in a few years ago are now out, and we have different investors who currently own the stock.
In addition, it is a high-quality investment with a high return on invested capital. Let's see if "Zoetis" can be a piggy bank for your future.
The outlook has been revised slightly, with a slight decrease in revenue, but net income remains profitable, returns are excellent, and margins are fantastic. Everything looks good.
The adjusted earnings per share are 6, and the reported amount is 5.5, which is acceptable.
But if we look at history, we find slow and steady growth as the market grows, net income is increasing, and everything looks good. Capital expenditures are stable and growing slightly, with investment in new drugs.
There are two drugs that expire, most importantly in 2030 and 2042. There are 12 new drugs in development, so it's interesting.
The focus was on repurchases, where they borrowed some money to do so via convertible bonds because they saw them as having high value.
The stock fell a little more, but that's okay. The focus is on share buybacks, restoring liquidity to shareholders, and distributing dividends. When we look at the cash flows, despite the weakness, we find 2 billion annually, more of which is allocated to repurchases, and slightly less to dividend distributions. 2 billion against a market value of 42 billion. There is dividend payout and repurchase growth.
Okay, but all that with a price-to-earnings ratio of 12 seems cheap. Because if we look at market expectations, they are always linear, but the growth of the veterinary pharmaceuticals market alone is expected at 10.73%.
It's an oligopoly, three players, which is interesting.
If we don't look at 10% growth, but 7%, plus buybacks and dividends, that actually means an additional 12% on top of that. We need to think about a high return on invested capital.
The market doesn't like this stock, so Perry likes these crashes and buys these stocks he's been following for years at a bargain price. If we have to put it in our box, let's put it here.
So, 12% should be a little more here, but to be more conservative, 10% is a market-like risk. So, I'm crowding the value side a bit into the value investment box, so we can track it over time. So, in conclusion, it seems very interesting.
In the pharmaceutical industry, you always have to accept more fluctuations there. A drug that doesn't get approval, this or that, something else, a competitor does this. So, you will have to accept that. You can see that here, fluctuations there.
It will continue, but if you want a good business, a high return on invested capital, a good position, profitable, growing, a good market, everything good, and separate from AI bubbles or the like.
Perhaps with artificial intelligence they can improve things a little. This is something very interesting. I understand that Barrick's position here looks like a buying opportunity.
We've added it to the box, and as time goes on we'll learn more, understand more, and who knows, maybe the market will give us better opportunities.