Zoetis Inc (NYSE: ZTS) is a relatively better pick than Elanco Animal Health Inc (NYSE: ELAN) for those interested in gaining exposure to the pets category, says Sarat Sethi. He’s a managing partner at DCLA.
Sethi sold Elanco to load up on Zoetis this week, adding “my theme for the last few weeks is to upgrade the quality of my stocks.”
He’s sticking to the pets category since it’s often touted as resistant to a recession.
According to Sethi, Zoetis stock is all the more exciting to own in terms of valuation now that it’s lost nearly 15% over the past three months.
Why is Zoetis stock superior compared to Elanco?
Sethi is bullish on Zoetis shares amidst a rather challenging macroeconomic environment this year as it’s a “leader in animal healthcare.”
Plus, the company based out of Parsippany-Troy Hills, NJ is free of regulatory issues that are often tied to the big pharma names, he added.
Investors should note that ZTS is growing at a much faster pace than Elanco as well.
In its fiscal Q4, the world’s largest producer of medicine and vaccinations for pets reported a 5.0% annualised growth in revenue.
Elanco, in comparison, saw its revenue decline by 1.0% on a reported basis in the fourth quarter.
ZTS offers a much better balance sheet than ELAN
Speaking recently with CNBC, the market expert agreed that Elanco Animal Health Inc is also a good stock to own in 2025.
But he prefers Zoetis over it as ELAN is “four times levered” which means its debt is about four times the size of its equity.
ZTS, on the other hand, offers a global footprint and a fortress of a balance sheet – both of which are attractive qualities to look for in stocks to own ahead of a potential recession, Sethi noted.
Finally, he likes Zoetis stock better than Elanco as the former currently yields 1.33%. ELAN, in comparison, doesn’t pay a dividend at writing.
Wall Street agrees with Sethi on Zoetis Inc
In February, Zoetis reported its financial results for the fourth quarter that topped Street estimates. At the time, Kristin Peck, the company’s chief executive told investors:
As we approach 2025, we’re eager to continue the momentum. We are confident that drivers of our success are sustainable, positioning us for continued above-market growth this year and beyond.
Zoetis forecasts up to 8.0% organic operational growth in revenue for 2025.
Note that Wall Street agrees with DCLA’s Sarat Sethi on Zoetis stock.
The consensus rating on ZTS shares currently sits at “overweight” with the mean target of $204 indicating potential upside of some 35% from current levels.
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