Stock Analysis on Net

Zoetis Inc. (NYSE:ZTS)

This company has been moved to the archive! The financial data has not been updated since May 2, 2024.

Present Value of Free Cash Flow to Equity (FCFE)

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Intrinsic Stock Value (Valuation Summary)

Zoetis Inc., free cash flow to equity (FCFE) forecast

US$ in millions, except per share data

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Year Value FCFEt or Terminal value (TVt) Calculation Present value at 13.76%
01 FCFE0 272
1 FCFE1 368 = 272 × (1 + 35.45%) 324
2 FCFE2 479 = 368 × (1 + 29.93%) 370
3 FCFE3 595 = 479 × (1 + 24.40%) 404
4 FCFE4 708 = 595 × (1 + 18.88%) 423
5 FCFE5 802 = 708 × (1 + 13.36%) 421
5 Terminal value (TV5) 225,130 = 802 × (1 + 13.36%) ÷ (13.76%13.36%) 118,141
Intrinsic value of Zoetis Inc. common stock 120,083
 
Intrinsic value of Zoetis Inc. common stock (per share) $263.17
Current share price $167.23

Based on: 10-K (reporting date: 2023-12-31).

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.


Required Rate of Return (r)

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Assumptions
Rate of return on LT Treasury Composite1 RF 4.74%
Expected rate of return on market portfolio2 E(RM) 14.94%
Systematic risk of Zoetis Inc. common stock βZTS 0.89
 
Required rate of return on Zoetis Inc. common stock3 rZTS 13.76%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rZTS = RF + βZTS [E(RM) – RF]
= 4.74% + 0.89 [14.94%4.74%]
= 13.76%


FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

Zoetis Inc., PRAT model

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Average Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019
Selected Financial Data (US$ in millions)
Dividends declared 716 631 509 404 330
Net income attributable to Zoetis Inc. 2,344 2,114 2,037 1,638 1,500
Revenue 8,544 8,080 7,776 6,675 6,260
Total assets 14,286 14,925 13,900 13,609 11,545
Total Zoetis Inc. equity 4,997 4,405 4,543 3,769 2,708
Financial Ratios
Retention rate1 0.69 0.70 0.75 0.75 0.78
Profit margin2 27.43% 26.16% 26.20% 24.54% 23.96%
Asset turnover3 0.60 0.54 0.56 0.49 0.54
Financial leverage4 2.86 3.39 3.06 3.61 4.26
Averages
Retention rate 0.74
Profit margin 25.66%
Asset turnover 0.55
Financial leverage 3.44
 
FCFE growth rate (g)5 35.45%

Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).

2023 Calculations

1 Retention rate = (Net income attributable to Zoetis Inc. – Dividends declared) ÷ Net income attributable to Zoetis Inc.
= (2,344716) ÷ 2,344
= 0.69

2 Profit margin = 100 × Net income attributable to Zoetis Inc. ÷ Revenue
= 100 × 2,344 ÷ 8,544
= 27.43%

3 Asset turnover = Revenue ÷ Total assets
= 8,544 ÷ 14,286
= 0.60

4 Financial leverage = Total assets ÷ Total Zoetis Inc. equity
= 14,286 ÷ 4,997
= 2.86

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.74 × 25.66% × 0.55 × 3.44
= 35.45%


FCFE growth rate (g) implied by single-stage model

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (76,306 × 13.76%272) ÷ (76,306 + 272)
= 13.36%

where:
Equity market value0 = current market value of Zoetis Inc. common stock (US$ in millions)
FCFE0 = the last year Zoetis Inc. free cash flow to equity (US$ in millions)
r = required rate of return on Zoetis Inc. common stock


FCFE growth rate (g) forecast

Zoetis Inc., H-model

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Year Value gt
1 g1 35.45%
2 g2 29.93%
3 g3 24.40%
4 g4 18.88%
5 and thereafter g5 13.36%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpolation between g1 and g5

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= 35.45% + (13.36%35.45%) × (2 – 1) ÷ (5 – 1)
= 29.93%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 35.45% + (13.36%35.45%) × (3 – 1) ÷ (5 – 1)
= 24.40%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 35.45% + (13.36%35.45%) × (4 – 1) ÷ (5 – 1)
= 18.88%