Zoetis Inc.

(New York Stock Exchange)
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Somewhat Bearish -45

6 Big Funds Sold Zoetis. Should You Follow Them Before Earnings?

Guidance lowered AI-generated analysis

πŸ“‰ Six major funds, including Fundsmith and Veritas Asset Management, sold or significantly reduced their Zoetis stakes in the quarter ended June 30.

πŸ“‰ Zoetis has cut its 2026 earnings guidance twice this year, with analysts now expecting a dip in earnings for the current fiscal year.

πŸ’° The stock trades at approximately 13.5x forward earnings, which is less than half of its five-year average valuation multiple.

πŸ“‰ Management cited softer US demand, including fewer vet visits and price-conscious pet owners, as reasons for the recent guidance reductions.

πŸ“Š Zoetis stock has fallen roughly 30% from its March 31 price but remains up 17% from where it ended June.

πŸ” Analysts have lowered their average price target to $88, reflecting concerns over the company's near-term growth trajectory.

⚠️ Investors face the risk of a third guidance cut when Zoetis reports Q3 results on November 5 if demand continues to weaken.

πŸ“ˆ Despite the sell-off, the current valuation is significantly lower than peers like Takeda Pharmaceutical and United Therapeutics.

Bullish Signals
  • The stock trades at a forward P/E of roughly 13.5x, which is less than half its five-year average of 28x.
  • Zoetis currently trades below peer specialty drugmakers like Takeda Pharmaceutical and United Therapeutics on a valuation basis.
  • The current share price sits slightly above the lowest analyst price target of $74, despite the consensus target being lower.
Risk Factors
  • Zoetis has cut its 2026 earnings guidance twice this year, with analysts now expecting a decline in earnings for the current fiscal year.
  • Management lowered its 2026 adjusted EPS guidance to $6.15-$6.25 and forecasts organic revenue to fall 1% to 3% this year.
  • The company attributes recent performance issues to softer US demand, specifically fewer vet visits and pet owners being more careful about price.
  • Six major funds, including Fundsmith which sold out completely, have exited or significantly reduced their positions in the quarter ended June 30.
  • Analysts have aggressively cut their price targets, with the average falling from $188 a year ago to $88.
Full Analysis
Six major institutional funds, including Fundsmith and Veritas Asset Management, significantly reduced or completely exited their positions in Zoetis (ZTS) during the quarter ended June 30. Fundsmith sold its entire stake of 3.88 million shares, while others like Polen Capital and Unisphere Establishment cut holdings by over 45%. This selling activity coincides with a broader decline in ZTS stock, which has fallen approximately 30% from its March highs. The primary driver for the institutional outflows is Zoetis's deteriorating earnings outlook. The company has issued two guidance cuts this year, most recently lowering its 2026 adjusted EPS forecast to $6.15-$6.25 and predicting a slight decline in organic revenue of 1% to 3%. Management attributes these challenges to softer US demand, specifically fewer veterinary visits and increased price sensitivity among pet owners. Despite the negative sentiment and guidance cuts, Zoetis currently trades at a forward P/E ratio of roughly 13.5x, which is less than half its five-year average of 28x. The stock also trades at a discount compared to peers like Takeda and United Therapeutics. Analysts have adjusted their targets downward, with the average price target falling to $88, though the current share price remains slightly above this consensus. The article highlights an upcoming earnings report on November 5 as a critical juncture for investors. While some view the current valuation as attractive given the 43% drop from highs, there is a risk of a third guidance cut if demand continues to slip. The author suggests holding or buying if the company can maintain its revised guidance through the upcoming quarter.