Core Viewpoint - The stock market has experienced volatility, but this does not deter investment, especially in resilient companies like Zoetis and Abbott Laboratories, which are strong candidates for income stocks [1][2]. Group 1: Zoetis - Zoetis is a leading animal health company with a diverse portfolio, including over 300 product lines, with about 15 generating over $100 million in annual revenue [4]. - Despite facing increased competition, particularly with its Apoquel product, Zoetis has consistently outperformed the industry in revenue growth and maintains a strong market position [5][7]. - The companion animal segment is a significant revenue driver, benefiting from changing consumer behavior where younger generations are increasingly spending on pet care [6]. - Long-term growth is supported by rising global demand for animal protein and Zoetis' established product lineup, despite short-term market challenges [7]. - Zoetis has a solid dividend profile, having increased payouts by 502% over the past decade, with a forward yield of 1.2% and a conservative cash payout ratio of 34.2% [8]. Group 2: Abbott Laboratories - Abbott Laboratories is diversified across medical devices, nutrition, diagnostics, and pharmaceuticals, which helps stabilize revenue during segment-specific challenges [9]. - The FreeStyle Libre continuous glucose monitoring system is a key growth driver, becoming the most successful medical device in dollar sales, with significant growth potential in an underpenetrated market [10]. - Demand for products like the MitraClip is expected to rise due to an aging population, positively impacting Abbott's overall results [11]. - Abbott has a strong income profile, having raised dividends for 53 consecutive years, with a yield of 1.8% and a cash payout ratio of 60.4% [12]. - Despite facing lawsuits and competitive pressures, Abbott's robust healthcare presence and innovative capabilities position it well for long-term performance [13].

Summary of Zoetis (ZTS) FY Conference Call - May 22, 2025 Company Overview - **Company**: Zoetis (ZTS) - **Industry**: Animal Health Key Points and Arguments Tariffs and Guidance - The company updated its guidance to reflect the impact of tariffs primarily affecting imports of APIs for livestock products from China, revising adjusted net income growth from 6%-8% to 5%-7% while maintaining organic operational revenue growth at 6%-8% [3][5][6] - The situation regarding tariffs remains fluid, and the company has several mitigation strategies available, including inventory management and dual sourcing [6][9][10] Lobbying Efforts - Zoetis is actively lobbying for an animal health exception from potential pharmaceutical tariffs, emphasizing its leadership role in the industry and the importance of U.S. manufacturing [11][12][13] - The company manufactures 75% of its U.S. sales domestically and is a net exporter, which strengthens its position in lobbying efforts [13][15] Librela Product Update - The company does not expect sequential growth for Librela in the U.S. but remains confident in year-over-year growth due to the large unmet market opportunity [16][17][18] - There are 27 million dogs in the U.S. with osteoarthritis (OA), but only 9 million are currently treated, indicating significant growth potential for Librela [19][20] - The company is focusing on educating veterinarians and pet owners to drive adoption and is leveraging post-launch studies to support its marketing efforts [20][22] R&D and Innovation Strategy - Zoetis maintains a balanced R&D strategy, with approximately 50% of spending on life cycle innovation and the other half on new innovations [48][52] - The company is excited about its pipeline, particularly in addressing unmet needs in companion animal health, such as chronic kidney disease (CKD) [59][60] Competitive Landscape - Zoetis is aware of potential competition in monoclonal antibodies but believes its established manufacturing capabilities and product pipeline provide a competitive advantage [61][62][64] - The company has a strong track record with its existing products, such as Apoquel, which has high satisfaction levels among veterinarians and pet owners [68] Financial Performance and Growth - The company aims to grow revenues faster than the industry average and has consistently achieved this, with operational growth rates above 10% in recent years [78][79] - Gross margins remain above 70%, and the company is focused on leveraging its operational efficiencies to drive bottom-line growth [79][80] Market Diversification - Zoetis emphasizes geographic and species diversification, with the U.S. accounting for 55% of its business and no other market exceeding 5% [87][88] - The company expects growth in alternative channels outside of veterinary clinics, which currently account for 21% of U.S. companion animal revenues [89][90] Additional Important Insights - The company is cautious about the timing of implementing mitigation strategies related to tariffs, ensuring that actions are taken only when necessary [6][10] - The feedback from veterinarians regarding label changes for Librela has been positive, aligning with labels in other markets [25][26] - The company is committed to lifecycle management for its products, ensuring continued innovation and market leadership [70][72]

Core Viewpoint - Zoetis (ZTS) has been upgraded to a Zacks Rank 2 (Buy) due to an upward trend in earnings estimates, which is a significant factor influencing stock prices [1][2]. Earnings Estimates and Stock Price Movement - The Zacks rating system is based on changes in earnings estimates, which are strongly correlated with near-term stock price movements [3][5]. - Institutional investors utilize earnings estimates to determine the fair value of stocks, leading to buying or selling actions that affect stock prices [3]. Company Performance and Outlook - The upgrade for Zoetis indicates an improvement in the company's underlying business, which is expected to positively influence its stock price [4]. - Zoetis is projected to earn $6.20 per share for the fiscal year ending December 2025, reflecting a year-over-year increase of 4.7% [7]. Zacks Rank System - The Zacks Rank system classifies stocks into five groups based on earnings estimates, with a strong historical performance, particularly for Zacks Rank 1 stocks, which have averaged a +25% annual return since 1988 [6]. - The upgrade of Zoetis to a Zacks Rank 2 places it in the top 20% of Zacks-covered stocks, indicating a strong potential for market-beating returns in the near term [9].

Financial Data and Key Metrics Changes - In 2024, the company achieved 11% operational revenue growth and a 15% increase in adjusted net income operationally, indicating strong financial performance [22][23]. Business Line Data and Key Metrics Changes - The innovative companion animal portfolio grew 14% operationally, with all key franchises delivering double-digit growth [23]. - The livestock portfolio also grew 5% operationally, surpassing the historic industry average [26]. Market Data and Key Metrics Changes - The dermatology franchise has helped over 25 million dogs and is projected to reach a market size of $2.5 billion by 2028, showcasing significant market potential [24]. Company Strategy and Development Direction - The company continues to focus on an omnichannel strategy, enhancing customer access through clinics, retail, and home delivery [23]. - There is an emphasis on integrating advanced technologies like generative AI into R&D processes to accelerate discovery and optimize development timelines [25]. - The strategic divestiture of certain product portfolios aligns with the focus on high-growth opportunities [26]. Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the strength of the portfolio and the ability to adapt to market changes, highlighting a long runway of opportunity ahead [27][28]. - The company remains committed to delivering meaningful outcomes for animals and their caretakers, reinforcing its purpose-driven approach [28]. Other Important Information - The company received conditional licensure for an avian flu vaccine for chickens, positioning it to support customers in addressing evolving threats [25]. Q&A Session Summary Question: How does the compensation committee use the compensation actually paid total compensation figures in its calculation of the CEO target total compensation award for the upcoming year? - The board considers competitive practices and performance, with 92% of the CEO's compensation based on performance incentives, both short-term and long-term [31][32].

Group 1 - Zoetis (ZTS) closed at $160.35, with a 7.9% gain over the past four weeks, and a mean price target of $202.33 indicating a 26.2% upside potential [1] - The average of 15 short-term price targets ranges from a low of $165 to a high of $244, with a standard deviation of $23.91, suggesting variability in analyst estimates [2] - Analysts show strong agreement on ZTS's ability to report better earnings than previously predicted, which supports the view of potential upside [4][11] Group 2 - The Zacks Consensus Estimate for ZTS has increased by 2.9% due to eight upward revisions and one downward revision in earnings estimates over the last 30 days [12] - ZTS holds a Zacks Rank 2 (Buy), placing it in the top 20% of over 4,000 ranked stocks based on earnings estimates, indicating strong potential for upside [13] - While price targets should not be the sole basis for investment decisions, the direction implied by them can serve as a useful guide [10][13]

Group 1 - Zoetis Inc. reported Q1 earnings that were not well received by the market, resulting in a stock drop of more than 5% on the day of the announcement [1] - Despite the initial drop, Zoetis Inc. managed to recover the entirety of the decline shortly thereafter [1] Group 2 - Best Anchor Stocks focuses on identifying high-quality companies that are currently experiencing challenging periods, presenting asymmetric investment opportunities [1] - The portfolio of Best Anchor Stocks has demonstrated a track record of revenue growth with below-average volatility since its inception in January 2022, outperforming the market [2]

Group 1 - Zoetis shares have underperformed over the past year, losing approximately 8% of their value [1] - Since reaching a peak in late 2024, Zoetis shares have declined by about 20% [1] - This decline adds to a trend of long-term underperformance for the company [1]

Financial Performance - Total revenue for the three months ended March 31, 2025, was $2,220 million, a 1% increase compared to $2,190 million in the same period of 2024, with operational revenue growth of 5%[100] - Net income attributable to Zoetis for the three months ended March 31, 2025, was $631 million, reflecting a 5% increase from $599 million in the same period of 2024[112] - Adjusted net income for the same period was $662 million, up 4% from $634 million in 2024[100] - U.S. segment revenue increased by $20 million, or 2%, to $1,183 million in Q1 2025, driven by an increase in companion animal products[133] - International segment revenue was relatively flat, but operational revenue increased by $73 million, or 7%, in Q1 2025, primarily due to growth in companion animal products[135] - Total operating segments revenue increased by $29 million, or 1%, to $2,220 million in Q1 2025 compared to $2,190 million in Q1 2024[130] - Gross profit for the U.S. segment increased by $38 million, or 4%, to $984 million in Q1 2025, with a gross margin of 83.2%[132] - International segment earnings increased by $16 million, or 3%, to $551 million in Q1 2025, with operational earnings growth of $35 million, or 7%[137] - Diluted earnings per share (EPS) for Q1 2025 was $1.48, an increase of 7% compared to $1.38 in Q1 2024[154] Expenses and Costs - Cost of sales decreased to 28.0% of revenue in Q1 2025 from 29.4% in Q1 2024, primarily due to price growth of approximately 4% and volume growth from key franchises[115] - Selling, general and administrative expenses increased by $16 million, or 3%, to $563 million in Q1 2025 compared to $547 million in Q1 2024[118] - Research and development expenses decreased by $5 million, or 3%, to $157 million in Q1 2025, attributed to timing of spend related to projects[119] - Amortization of intangible assets decreased to $32 million in Q1 2025 from $37 million in Q1 2024, primarily due to assets becoming fully amortized[120] - Interest expense, net of capitalized interest, decreased by $4 million, or 7%, to $54 million in Q1 2025 compared to $58 million in Q1 2024[126] - Provision for taxes on income increased by $21 million, or 14%, to $179 million in Q1 2025, with an effective tax rate of 22.1% compared to 19.8% in Q1 2024[128][129] - Corporate expenses decreased by $17 million, or 6%, in Q1 2025, primarily due to favorable foreign exchange and lower compensation-related costs[140] Cash Flow and Liquidity - Net cash provided by operating activities decreased to $587 million in Q1 2025 from $595 million in Q1 2024, primarily due to timing of receipts and payments[164] - Net cash used in investing activities increased to $175 million in Q1 2025 from $131 million in Q1 2024, mainly due to capital expenditures[165] - Net cash used in financing activities rose to $677 million in Q1 2025 from $524 million in Q1 2024, driven by treasury share purchases and dividend payments[166] - As of March 31, 2025, cash and cash equivalents totaled $1,721 million, down from $1,987 million on December 31, 2024, indicating a decrease of approximately 13.4%[168] - The current ratio of current assets to current liabilities was 1.74:1 as of March 31, 2025, slightly down from 1.75:1 on December 31, 2024[168] - The company anticipates that global economic conditions may impact liquidity, but it believes it can meet liquidity needs for the foreseeable future due to operating cash flows and access to capital markets[173] Debt and Credit Facilities - The company has a multi-year $1.0 billion senior unsecured revolving credit facility, which can be increased to $1.5 billion under certain conditions, expiring in December 2027[169] - As of March 31, 2025, the company had access to $51 million of additional lines of credit, with no borrowings outstanding related to these facilities[171] - The company’s outstanding debt securities include $750 million in 2015 Senior Notes due 2025 with a 4.500% interest rate and $600 million in 2022 Senior Notes due 2025 with a 5.400% interest rate[176] - Moody's assigned a long-term debt rating of A3 with a stable outlook, while S&P assigned a rating of BBB+ with a stable outlook[179] - The company maintains compliance with all financial covenants as of March 31, 2025, with no amounts drawn under the credit facility[170] Share Repurchase and Other Activities - The company repurchased 2.7 million shares for $443 million during the first three months of 2025, with $5.2 billion remaining under the authorized share repurchase program[180] - Other business activities net loss decreased by $3 million in Q1 2025, reflecting a decrease in R&D costs[139] - Total purchase accounting adjustments for Q1 2025 were $31 million, down from $35 million in Q1 2024[156] - Interest expense for Q1 2025 was $54 million, a decrease from $58 million in Q1 2024[155] - The company regularly monitors accounts receivable, which were collected within the standard range of 45 to 75 days, with accounts receivable net totaling $1,361 million as of March 31, 2025[168] Market Presence - Zoetis operates in approximately 45 countries and is a market leader in nearly all major regions, with a diversified product portfolio of around 300 product lines[97]

Core Viewpoint - Zoetis, Inc. reported strong first-quarter 2025 results with adjusted earnings of $1.48 per share, exceeding expectations and showing year-over-year growth [1][2] Financial Performance - Total revenues increased by 1% year over year to $2.22 billion, surpassing the Zacks Consensus Estimate of $2.19 billion [2] - U.S. segment revenues rose by 2% to $1.183 billion, although it fell short of the consensus estimate [3] - International segment revenues remained flat year over year but increased by 7% on an operational basis to $1.008 billion, beating estimates [7] Product Performance - Sales of companion animal products in the U.S. surged by 8% to $973 million, driven by monoclonal antibody products and dermatology portfolio [4] - Livestock product sales in the U.S. declined by 21% to $210 million, primarily due to the divestiture of the medicated feed additive portfolio [5] - Ex-U.S. sales of companion animal products rose by 4% to $573 million, with significant contributions from OA pain products and dermatology products [8] Guidance Update - Zoetis raised its 2025 guidance for adjusted earnings to a range of $6.20-$6.30 per share and revenue projection to $9.425 billion to $9.575 billion [13]

Company Performance - Zoetis reported quarterly earnings of $1.48 per share, exceeding the Zacks Consensus Estimate of $1.40 per share, and showing an increase from $1.38 per share a year ago, representing an earnings surprise of 5.71% [1] - The company posted revenues of $2.22 billion for the quarter ended March 2025, surpassing the Zacks Consensus Estimate by 1.35% and showing growth from $2.19 billion year-over-year [2] - Over the last four quarters, Zoetis has consistently surpassed consensus EPS and revenue estimates [2] Stock Outlook - The immediate price movement of Zoetis shares will largely depend on management's commentary during the earnings call, with shares down about 3% year-to-date compared to the S&P 500's decline of 3.9% [3] - The current consensus EPS estimate for the upcoming quarter is $1.59 on revenues of $2.38 billion, and for the current fiscal year, it is $6.07 on revenues of $9.31 billion [7] Industry Context - The Medical - Drugs industry, to which Zoetis belongs, is currently ranked in the top 22% of over 250 Zacks industries, indicating a favorable outlook compared to the bottom 50% [8] - Empirical research suggests a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can impact Zoetis's stock performance [5]