Popular veterinary pharmaceutical company Zomedica Corporation (ZOM) has had a remarkable run, gaining 695.6% over the past nine months. This was driven primarily by the positive feedback on its Truforma diagnostic device, which counts T4 and TSH hormone concentration in pets’ bloodstream. However, the company has not been able to generate substantial revenue from Truforma sales in the first quarter of 2021. ZOM plans to supply the product directly going forward, which might lead to depressed sales margins. Furthermore, ZOM's relative overvaluation compared to its peers has been a concern for some time. In terms of trailing-12-month EV/Sales, ZOM’s 43.28kx is significantly higher than the 7.79 x industry average. And the stock is currently trading 68.7% below its 52-week high of $2.91. Its poor quarterly financials and unfavorable analyst sentiment makes it best avoided now.
However, the pet industry has been on a growth trajectory, driven by increased pet adoption during the pandemic and huge spending on pet food medications and other products. The U.S. pet industry reported a record $103.60 billion in sales in 2020. Pet companies are currently focusing on the research and development of viable drugs, vaccines, diagnostic devices and other pet-friendly products to capitalize on the growing demand. The industry’s sales are expected to rise 5.8% year-over-year to hit $109.60 billion in 2021. Furthermore, the global pet care market is expected to grow at a 5.6% CAGR over the next seven years to hit $325.74 billion by 2028.
Given this backdrop, we believe it is wise to invest in relatively better pet stocks Zoetis Inc. (ZTS) and IDEXX Laboratories, Inc. (IDXX) that have the potential to outperform ZOM in the near term, given their impressive product launches, higher-than-industry profitability and impressive financials.
Zoetis Inc. (ZTS)
ZTS discovers, develops, manufactures and markets veterinary vaccines and medicines and diagnostic products, complemented by genetic tests and a range of services worldwide. The company markets its products to veterinarians, livestock producers, and retail outlets, as well as to third-party veterinary distributors through its sales representatives and technical and veterinary operations specialists.
On June 3, ZTS published its 2020 Sustainability Report describing its commitment to ESG criteria and progress toward its ‘Driven to Care’ sustainability aspirations, which it launched to advance and develop sustainable animal health solutions. In 2020, the company donated more than $6 million to support animals and veterinary students. ZTS will continue to combat diseases posing the greatest risk to animals and people and develop vaccines for high impact emerging infectious diseases through its continued investment in the Center for Transboundary and Emerging Diseases. ZTS has been sourcing 8.8% renewable electricity to minimize its carbon footprint and hopes to progress toward its RE100 commitment to source 100% renewable energy by 2050.
On February 22, the European Commission (EC) granted marketing authorization for Solensia, a new feline osteoarthritis treatment to alleviate pain. Existing in 40% of cats, osteoarthritis causes pain and limits a cat’s comfort and quality of life if not treated. With the EC’s approval, ZTS should generate improved sales in the near-term.
ZTS’ revenue for its fiscal year 2021 first quarter, ended March 31, increased 22% year-over-year to $1.87 billion. The company’s non-GAAP gross profit increased 23.1% year-over-year to $1.33 billion. Its non-GAAP operating income came in at $744 million, up more than 36% from the prior-year period. While its non-GAAP net income increased 32.5% year-over-year to $603 million, its non-GAAP EPS increased 32.6% year-over-year to $1.26.
A $1.08 consensus EPS estimate for the current quarter, ending June 30, 2021, represents a 21.3% improvement year-over-year. ZTS surpassed consensus EPS estimates in each of the trailing four quarters. The $1.81 billion consensus revenue estimate for the current quarter represents a 33.2% gain from the prior-year period. Analysts expect the stock’s EPS to grow at a 12.5% rate per annum over the next five years. The stock has gained 21.7% over the past year and closed Friday’s trading session at $175.20.
It’s no surprise that ZTS has an overall A rating, which equates to Strong Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has a B grade for Growth, Stability and Quality. Click here to see the additional ratings for ZTS (Value, Sentiment and Momentum).
ZTS is ranked #3 of 230 stocks in the Medical - Pharmaceuticals industry.
Click here to checkout our Healthcare Sector Report for 2021
IDEXX Laboratories, Inc. (IDXX)
IDXX develops, manufactures and distributes products and provides services for the companion animal veterinary, livestock and poultry, dairy and water testing markets worldwide. The company also sells portable electrolytes and blood gas analyzers for the human point-of-care medical diagnostics market.
IDXX acquired ezyVet, a cloud-based practice information management system (PIMS), on June 2. With this acquisition, IDXX should be able to further expand its world-class cloud software offerings that support customers with technology solutions that raise the standard of care for patients, improve practice efficiency, and enable more effective communication with pet owners.
On January 28, IDXX announced that it would contribute $3.6 million to Tuskegee University College of Veterinary Medicine (TUCVM) over six years to advance diversity, equity, and inclusion in veterinary medicine. In response to tremendous growth in diversity in the pet-owning population over the past 10 years, the initiative should contribute to ensuring the highest standard of care for pets in all the communities.
For its fiscal year 2021 first quarter, ended March 31, IDXX’s total revenues increased 24.2% year-over-year to $777.71 million. The company’s gross profit came in at $470.78 million, up 30.9% from the prior-year period. Its income from operations is reported at $247.62 million for the quarter, which represents a 71.6% improvement year-over-year. IDXX’s net income is reported to be $204.26 million, up 82.7% from the year-ago period. Its EPS increased 82.2% year-over-year to $2.35.
Analysts expect IDXX’s EPS to be $2.04 for its fiscal 2021 second quarter, ending June 30, 2021, which represents an 18.9% rise from the prior-year period. It surpassed the Street’s EPS estimates in each of the trailing four quarters. Also, the consensus revenue estimate is $794.59 million for the first quarter, representing a 24.6% rise year-over-year. IDXX’s EPS is expected to grow at a 16.7% rate per annum over the next five years.
The stock has gained 50.6% over the past year and 22.1% over the past nine months. It closed Friday’s trading session at $558.36.
IDXX’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our proprietary rating system.
The stock has an A grade for Quality, and a B grade for Sentiment and Stability. Click here to see the additional ratings for IDXX (Growth, Value and Momentum).
IDXX is ranked #17 of 183 stocks in the Medical - Devices & Equipment industry.
Click here to checkout our Healthcare Sector Report for 2021
ZOM shares were trading at $0.96 per share on Monday afternoon, up $0.05 (+5.63%). Year-to-date, ZOM has gained 316.31%, versus a 13.15% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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