Zoetis Inc. (ZTS) stock intrinsic value fair value estimate & owner earnings analysis

Zoetis is the world's largest maker of medicines and vaccines for pets and farm animals. In 2025 it earned $9.5 billion of revenue: $6.6 billion from companion animals (mostly dogs and cats) and $2.8 billion from livestock. The United States is about 54% of sales; no other country is above 10%. Five franchises (Simparica/Simparica Trio parasite control at about 16% of revenue, Apoquel dermatology at about 12%, plus Cytopoint, Librela and the ceftiofur line) make up roughly 42% of revenue. How we measure earnings. We start from cash from operations, remove swings in receivables, inventory, payables and similar balances, subtract stock-based pay as a real cost, and subtract only the capital spending needed to keep the business running (spending tied to sales growth is treated as growth spending). Owner earnings per share rose from about $2.43 in 2017 to $4.34 in 2021, $4.48 in 2023, $4.78 in 2024 and $6.05 in 2025. We anchor on the median of 2021-2025, $4.48 per share, rather than the 2025 peak: 2025 was 27% above 2024, partly because of large inventory and receivable builds that we strip out and because international sales were pulled into the fourth quarter ahead of a change in the fiscal calendar of foreign subsidiaries (management puts the boost at roughly 2.5-3.5% of International segment sales and says it will not recur). Earlier years reflect a smaller business. Discounting is at a flat 6%. Base case: $104 per share. Owner earnings grow 5% a year for five years and 4% for the next five, then hold flat. Last year's actual growth was 27%, so year one is deliberately far lower. The growth credited is what the business has already delivered: revenue rose from $4.9 billion in 2016 to $9.5 billion in 2025 (about 7.6% a year, through the pandemic period), and the share count fell from about 498 million to 444 million. We credit less than that pace. We do not credit new products such as Librela's expansion or margin gains. After year ten we assume the earnings level simply persists, resting on the company's record of replacing products (Apoquel 2013, Simparica 2016, Simparica Trio 2020, Librela and Solensia in recent years) and on management's statement that brand loyalty often continues after patents lapse. We deduct a few dollars per share to reflect that the $2 billion 0.25% convertible notes due 2029 will eventually be replaced with higher-cost debt. Bear case: $57 per share. Growth is zero for four years, then earnings decline about 6% a year for five years. The named risk is patent loss on a large product: the filing shows Draxxin sales fell 66% in the U.S. after generic entry in 2021, and Apoquel and Simparica together are about 28% of revenue. The filing also says U.S. sales of Librela were lower in 2025. Total debt is about $9.2 billion of unsecured senior and convertible notes, which lowers flexibility if earnings fall. The filing does not give expiry dates for Apoquel or Simparica patents, so the timing here is an assumption of the case, not a disclosed date. Bull case: $127 per share. Growth of 8% a year for five years and 6% for five more, then flat, roughly the company's demonstrated 7.6% revenue pace with continued annual price increases. That path includes the same funding-cost deduction as the base case. What could make this wrong: a loss of exclusivity on Apoquel or Simparica sooner than expected, safety or supply problems with the injectable arthritis antibodies, a slowdown in veterinary visits, or a cash-flow drop when the fiscal-year alignment removes one month of International results from 2026. Zoetis also disclosed convertible notes and higher buybacks in 2025; we did not add cash or subtract debt in the valuation, since interest is already inside operating cash flow. Note: the most recent quarterly report (June 2026) could not be read in full for this analysis, so 2026 trends are not reflected.