ZTS is undervalued relative to historical multiples; strong FCF and balance sheet support a bull thesis on long-term growth potential.

has anyone ever heard out there of of the stocketis before? I did a video a long time ago about this company. I liked it then and stocks been absolutely crushed recently.

So, look at this um stock market drop. I'll just go last last year, if you will. So, $160 down to 180, excuse me, down to 80. If you zoom out, it's done nothing but go down for the last two years.

Um, despite revenue and earnings increasing. So, I think I think this is classic market multiple compression.

If you uh if you read some of the headlines, they had a they had one quarter where US revenue declined just US they're global company but US revenue declined 11%. For a particular drug uh and that has caused an absolute uh meltdown in the stock recently.

But I [clears throat] think other people have been maybe worried about either expiration of drugs that they had kind of effective monopolies on uh and or increased competition uh that's coming to the market.

So as a result the [clears throat] the market multiple has absolutely come down.

It's now sub 10x for stock that was 30 sometimes 40 times earnings. uh ibida return on invested capital 24% return on common equity almost 70%. uh free cash flow yield fantastic number this is actually you know actual hard money jack that these guys are making divide by market cap you get 7% free cash flow yield and a debt to ibida ratio here of 1.7 uh that is a very unlevered company that sells drugs uh and is growing albeit um this last individual drug the the revenue itself continues to grow.

You can see this long track record here then the blue line is long-term revenue growth over the last decade. Purple is uh ebida growth even if we are looking to the to the most recent quarters uh the most recent quarters were still positive uh Q over Q.

as you start seeing free cash flow yields climb above like the treasury rate. Um there become pretty interesting that you can hold a stock in this instance uh a veterary company, a drug company, excuse me, a drug company that sells drugs, um a and have something that has very little debt on it, less than two times as as as a long-term growth play rather than holding a bond that pays you 4% four and a half five, but you own something that could potentially double, triple, 10x long-term. I think that's really interesting.

revenue. Look at this revenue for the last decade. So, u, in 2016, they were doing 4.88 billion of revenue. And that has grown to, I just run through these numbers quickly, 5.3 billion, 8.5, sorry, 5.8 billion, 6.2, 6.7, 7.7.

That's a$1 billion jump in a year. Great for them. Um 8 billion 8.5 9.2 9.5. Um so on an annualized basis sort of keer uh compound annual growth rate over the last decade they're running 8%.

Now that's slightly higher than the uh industry the veterary medical industry if you pull up um Zoet's information IR. Sorry the beer is making burp. I apolog That's that's not that's not good.

But it is delicious. Um, if you look at the long-term growth rate of the industry, it's like 5 to 8%. These guys are growing at the top end of that range. That to me means like they're kind of an A player, right?

You're they're setting the standard for the range that the industry can grow at. Love to see that.

EBITDA. So, they've been profitable every single year. Excellent. And it looks like EBITDA has grown every single year as well as revenue. So 1.7 1.7 billion. What margin is that?

If I take 1.7 divide by revenue, uh that's 35% margin, right? So they're making 35% on their money.

They're making 35% margin and that's grown over the years to 43%. So, so 43% of every single dollar of revenue that they make is falling to profitability. That Ebidot turns into free cash flow after ca after um taxes and well they don't really have an interest so it turns into free cash flow.

That cash flow is used to buy back stock, pay dividends. We'll show you that in a little bit. So, this is great. Uh profitability is growing faster than revenue.

Now, one could argue that 43%'s probably the top end of that range. I don't know. Can they get to 44, 45? I don't know. Like, it could it could moderate and ebidoc growth could slow with this pressure from competition.

Maybe they lower their pricing a little bit. Maybe they take take a little off the top. That that growth could slow, but historically, they've been able to do it. And they have a pipeline full of drugs that's going to continue to to come out. So, that's great.

debt we cover debt has grown at 8% in line with revenue. Uh excess cash they have more than this cash on the balance sheet. I'm kind of plugging what I think they could easily dividend dividend out and it not bother the company at all.

U I'm still holding a billion in pure cash on top of these numbers. So if they dividend out 1.3 billion, they still have plenty of liquidity.

market cap. Uh, add all that up, you get market cap, excuse me, add all that up, you get enterprise value. Interesting. Look at the market cap collapse here at a peak of $116 billion.

So, in 2021, people were paying $116 billion in market cap for this business. You can pick it up right now for 55 55 billion if not actually a little less. Yeah, that's at $125 uh market cap.

I think it's $78 a share right now. Times 444. You can That's crazy. You can pick this up for 34 billion right now. So this new number here is now 34 billion. 30 34 billion. So what was once 116 and people rationalized that when they bought it, someone did math.

They're like, "Oh, you know, I think this works." you can now buy the same stock for $34 billion.

Now that's I think that's called d-risking. It's kind of what what I look at and and look at the market multiple. So if we if we take enterprise value divide by this stock is is is ne at least measured on an annual basis at December. It's never been any cheaper.

Let's take a look at Finnbox. they've got a little bit better um they measure a little bit more frequently but we're seeing the same thing. So here's 10year blue line here is the EVA.

So you're in your 20s you go up you up peak at 30 and you come down and you crater off to the end here at 15 times is is the low end.

Um, so we're seeing we're seeing the same same pattern here. And you you can pick this stock stock up for a price on an earnings basis based on historical earnings, right? Stocks are stock prices reflect future projections.

So the market's saying, "Hey, earnings are going to be lower." So they're lowering the stock. I grant you that. They could be wrong. They could have overshot. So you can currently pick it up for the cheapest it's ever been in a decade.

So, their cash flow here, again, positive every year and growing at 17%. That's in line with the Ebida. So they're both the income statement and the cash flow is is growing relatively at the same rate.

That to me says at least a smell check it's been um it's been like directionally correct. The accounting team isn't playing monkey games with um you know you might see here's a great example revenue recognition.

Capex, their capex is pretty minimal, right? They're not they're not the the Googles um of the world that are having to put in a ton of cash. These are most likely research facilities upgrading technology um and so forth.

Uh debt payments. This one for me I kind of ignore because my debt ratio is less than two or less than three. Three is really what we look for. It's even less than that. So I don't if if they want to borrow a little here, a little there.

I'm not going to really push that into my forecast.

Free cash flow. Um this is 4.6 billion. It's a little less than that because they borrowed money. So really, it's it's basically the net of these two, which is 2.3 billion. 2.3 billion divided by the 444 million shares outstanding is rough numbers, $5 per share of free cash flow.

Uh $5 against uh a stock price of $78 is an 8 is a 6 and a half% free cash flow yield.

Uh, so this business as it goes is putting off a tremendous cash. Some of what is going to be used to buy back stock, some of it's going to be a dividend, and a third of it's going to be like held on the balance sheet.

But you've already you've already paid for capex. It's already been it's already been expensed. This is truly free cash flow.

so we got 2026, their fiscal year ends in December, so we're halfway through the year. Um, I've got a I've got a 6% growth rate as a as an estimate. I kind of looked at what is going out there in the market.

I the range of outcomes for this stock is pretty wide. Um, nobody really knows the impact of of competition. And I and their earnings, these guys are printing earnings I think on the 8th of this month.

It's it's I think it's next week or late this week. So, take a look at um

Zoetta, I I kind of liked it. Um keep thinking about it. Who knows? Uh their earnings are coming out. They've got a a conference call. I think their earnings are this week or next week.

Watch that. See what management says. See what their take on this is. Um see their comments on the the threat of generics. I would expect them to address some of this stuff. And depending upon what they say, you know, you can place your bets.