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Value Line recently initiated coverage of Zoetis (ZTS) in its flagship product, The Value Line Investment Survey. The independent company was born from a spinoff from Pfizer in February, 2013, and represents the only pure-play option in The Value Line Investment Survey for exposure to the animal health market. Zoetis is headquartered in Madison, New Jersey and employs roughly 9,300 workers.

The company offers an array of medicines that focuses on the treatment of both livestock and companion animals. Generally speaking, its major product categories include anti-infectives, vaccines, parasiticides, medicated feed additives, and other pharmaceutical products. Zoetis’ line of medicines is marketed across the spectrum of customers, large and small, from multinational food companies to veterinary offices to families with dogs. The company competes principally with the animal health divisions of Merck (MRK - Free Merck Stock Report), Bayer AG, and other large pharmaceutical companies. In addition, hundreds of smaller local companies across the world vie for the same market space as Zoetis.

Zoetis’ global focus allows for less exposure to the specific pitfalls of one major market. The company operates 29 production facilities in its global operating network. Marketing directly to 70 nations, while its products were sold to 120 countries, the company’s brand foothold across the world is one of its strongest assets. The United States is its largest market, 41% of sales in 2012, while the rest of North America contributes an additional 18%. The Europe/Africa/Middle East regions posted 25% of business, while Asia/Pacific, its fastest growing market, added 16%. One of the shortcomings of operating all over the world is the often divergent regulatory environments in each region. Still, given its operational strength, growing cash presence, and Pfizer pedigree, Zoetis is equipped to weather any foreseeable regulatory storm.

This geographical makeup is changing though, as macroeconomic pressure has strained demand considerably in North America and Europe. Already the largest animal health company in the world, Zoetis looks poised to benefit from rising demand in emerging markets. While these growing economies generated 27% of sales last year, we anticipate this figure to grow substantially in coming years. The company’s anchor sites in China (2), Brazil, and India will undoubtedly help to maximize business in these emerging regions.

The future looks bright for Zoetis, with share-earnings figuring to increase nearly 66% in the next three to five years. As the company penetrates more upstart markets, the top line is poised to grow, as well. In a recent conference call, management revealed some details regarding its capital allocation strategy and, more specifically, how it figures into strengthening Zoetis over the long haul. While the word “acquisition” was not spoken, there were plenty of indications that long-term growth opportunities were constantly being explored. We think additions, be they large or small in nature, would help the company fortify its product portfolio and strengthen its footprint in new geographies.

Subscribers interested in owning this pure-play animal health and medicine equity are advised to consult Value Line’s quarterly reports for Zoetis (ZTS), as well as any supplemental reports and relevant articles as important news items arise on ValueLine.com.

At the time this article was written, the author did not have positions in any of the companies mentioned.