Which animal health service stock is a better buy?

Zoetis Inc. (ZTS) in Parsippany, NJ, discovers, develops, manufactures and markets animal health drugs, vaccines and diagnostics internationally. It markets products primarily for all species, including livestock and pets. In comparison, IDEXX Laboratories, Inc. (IDXX) in Westbrook, Maine, develops, manufactures and distributes products and services primarily for the global veterinary companion animal, livestock and poultry, dairy and water testing markets. The company operates through CAG; water quality products; LPD; and Other Segments.

Since companion animals require proper care from their owners to be healthy and the production of healthy animals ensures secure food supply and price stability, the animal health services market is gradually gaining ground all over the world. In addition, the government’s increasing focus on preventing animal disease outbreaks is benefiting the animal health service sector. Additionally, the animal health service industry is expected to flourish due to rapid technological advancements and increased research and development activities in the veterinary pharmaceutical industry.

According to a report by Transparency Market Research, the global animal health market is expected to grow at a pace CAGR of 7.2% through 2028. Therefore, ZTS and IDXX should benefit. IDXX stock has fallen 28.1% over the past year, while ZTS has lost 1.5%.

But which of these two stocks is a better buy now? Let’s find out.

Latest developments

On May 19, 2022, the board of directors of ZTS declared a dividend of $0.33 per share for the third quarter of 2022. The dividend will be paid on Thursday, September 1, 2022 to all registered holders of its common shares from from the close of business on Thursday, July 21, 2022.

On May 4, 2022, Jay Mazelsky, President and CEO of IDXX said, “Veterinarians and their staff continue to work with passion to support their practices in a demanding environment. IDEXX solutions help improve patient care and manage increased demands on their time, as well as continue to advance higher standards for pet healthcare, including the use of diagnostics.

Recent financial results

ZTS revenue increased 6% year-over-year to $1.99 billion for its first fiscal quarter ended March 31, 2022. The company’s non-GAAP gross profit increased 7 % year-on-year to reach $1.42 billion, while net profit was $625 million, representing a 3.6% year-on-year increase. Additionally, its non-GAAP EPS was $1.32, up 4.8% year-over-year.

IDXX’s revenue increased 8% year-over-year to $836.55 million for the first fiscal quarter ended March 31, 2022. Its gross profit increased 5.9% year-over-year to $498.75 million. However, its net profit came in at $193.97 million, down 5.1% year-on-year. Additionally, its EPS was $2.27, down 3.4% year-over-year.

Past and expected financial performance

ZTS’s revenue and EPS grew at CAGRs of 10.1% and 15.1%, respectively, over the past three years. Analysts expect ZTS’s revenue to grow 4.8% for the quarter ending June 30, 2022 and 7% in its fiscal year 2022. The company’s EPS is expected to rise 2.5% for the quarter ending June 30, 2022 and 8.1% in its fiscal year. 2022. In addition, its EPS is expected to grow by 11.1% per year over the next five years.

By comparison, IDXX’s revenue and EPS have grown at CAGRs of 13.3% and 24.4%, respectively, over the past three years. The company’s revenue is expected to increase 4.7% for the quarter ending June 30, 2022 and 6.9% in fiscal 2022. However, its EPS is expected to decline by 33.3 % for the quarter ending June 30, 2022 and 4.2% in fiscal 2022. In addition, IDXX’s EPS is expected to grow 10.2% annually over the next five years.

Profitability

ZTS’s revenue over the last 12 months is 2.41 times greater than that generated by IDXX. ZTS is also more profitable, with gross profit margin and net profit margin of 70.66% and 26.27%, respectively, compared to 58.56% and 22.43% for IDXX, respectively.

However, IDXX’s respective ROE, ROA, and ROTC of 109.37%, 23.70%, and 32.15% are higher than ZTS’s 47.31%, 12.86%, and 15.56%.

Evaluation

In non-GAAP forward P/E terms, IDXX is currently trading at 47.76x, 40.8% higher than ZTS’s 33.93x. Additionally, IDXX’s forward EV/EBITDA of 33.40x is 42.3% higher than ZTS’s 23.47x.

Thus, ZTS is relatively affordable here.

POWR Rankings

ZTS has an overall rating of B, which equates to a strong buy in our own POWR Rankings system. By comparison, IDXX has an overall C rating, which translates to a neutral. POWR ratings are calculated by considering 118 separate factors, with each factor weighted to an optimal degree.

ZTS has a B rating for stability, which is in line with its 0.76 beta. By comparison, IDXX has a C rating for stability, which is consistent with its 1.11 beta.

ZTS has an A rating for quality. This is justified given ZTS’ gross profit margin of 70.66% over the last 12 months, which is 27.1% higher than the industry average of 55.60%. In comparison, IDXX has a quality rating of B, which is in line with its gross profit margin of 58.56% over the last 12 months, which is 5.3% higher than the industry average of 55. 60%.

Of the 165 shares of Medical – Pharmaceutical industry, ZTS is ranked #19. However, IDXX is ranked #43 out of 150 stocks in the Medical – Devices and Equipment industry.

Beyond what I said above, we also evaluated stocks for growth, momentum, value and sentiment. Click here to see all ZTS ratings. Also get all IDXX ratings here.

Click here to view our 2022 Healthcare Sector Report

The winner

The animal health industry is expected to grow with increasing attention to the health needs of companion animals and livestock. While ZTS and IDXX are both expected to win, we think it’s best to bet on ZTS now due to its strong financials, better growth prospects, lower valuation and higher profitability.

Our research shows that the odds of success increase when investing in stocks with an overall buy or strong buy rating. See all other top-rated stocks in the Medical – Pharmaceutical sector here. Also, Click here to access all the top rated stocks in the medical device and equipment industry.

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Shares of ZTS were unchanged in premarket trading on Tuesday. Year-to-date, the ZTS is down -29.24%, compared to a -12.86% rise in the benchmark S&P 500 over the same period.

At Nimesh Jaiswal a fervent interest in the analysis and interpretation of financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving the price of a stock is the key approach he follows while advising investors in his articles. After…

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