⁠Dimitry Nakhla | Babylon Capital®
A sober valuation analysis on $ZTS 🧘🏽‍♂️

•NTM P/E Ratio: 28.33x
•10-Year Mean: 30.98x

•NTM FCF Yield: 3.21%
•10-Year Mean: 3.26%

As you can see, $ZTS appears to be trading near fair value

Going forward, investors can receive ~9% MORE in earnings per share & ~2% LESS in FCF per share 🧠***

Before we get into valuation, let’s take a look at why $ZTS is a great business

BALANCE SHEET✅
•Cash & Short-Term Inv: $1.71B
•Long-Term Debt: $6.59B

$ZTS has a strong balance sheet, an ok BBB S&P Credit Rating & 12x FFO Interest Coverage

RETURN ON CAPITAL✅
•2019: 21.4%
•2020: 19.9%
•2021: 24.1%
•2022: 23.1%
•2023: 25.7%
•LTM: 27.4

RETURN ON EQUITY✅
•2019: 61.3%
•2020: 50.5%
•2021: 48.9%
•2022: 47.2%
•2023: 49.8%
•LTM: 47.3%

$ZTS has strong return metrics, highlighting the financial efficiency of the business

REVENUES🆗
•2013: $4.56B
•2023: $8.54B
•CAGR: 6.47%

FREE CASH FLOW✅
•2013: $497.00M
•2023: $1.62B
•CAGR: 12.54%

NORMALIZED EPS✅
•2013: $1.42
•2023: $5.32
•CAGR: 14.12%

*you’ll notice stronger CAGR in FCF & EPS mainly due to margin expansion, which should continue (e.g. net income margins — from 2013 to 2023 — grew from 11.1% to 26.6%, respectively)

SHARE BUYBACKS✅
•2013 Shares Outstanding: 500.32M
•LTM Shares Outstanding: 457.09M

By reducing its shares outstanding ~8.6%, $ZTS increased its EPS by ~9.4% (assuming 0 growth)

MARGINS✅
•LTM Gross Margins: 70.1%
•LTM Operating Margins: 36.5%
•LTM Net Income Margins: 26.6%

***NOW TO VALUATION 🧠

As stated above, investors can expect to receive ~9% MORE in EPS & ~2% LESS in FCF per share

Using Benjamin Graham’s 2G rule of thumb, $ZTS has to grow earnings at a 14.17% CAGR over the next several years to justify its valuation

Today, analysts anticipate 2025 - 2026 EPS growth over the next few years to be less than the (14.17%) required growth rate:

2024E: $5.86 (10.2% YoY) *FY Dec

2025E: $6.41 (9.4% YoY)
2026E: $7.13 (11.1% YoY)

$ZTS has an excellent track record of meeting analyst estimates ~2 years out, so let’s assume $ZTS ends 2026 with $7.13 in EPS & see its CAGR potential assuming different multiples

32x P/E: $228.16💵 … ~13.8% CAGR

30x P/E: $213.90💵 … ~10.5% CAGR

28x P/E: $199.64💵 … ~7.0% CAGR

26x P/E: $185.38💵 … ~3.4% CAGR

As you can see, $ZTS appears to have attractive return potential IF we assume >30x earnings (a multiple near its 10-year mean & multiple justified by its moat & exemplary capital allocation)

However, those buying $ZTS today at $176💵 are buying it for a fair price, with little margin of safety

I’d be more interested in $ZTS closer to $160💵 (10% below today’s price) where I can reasonably expect ~12% CAGR while assuming a 28x end multiple, ensuring some margin of safety

#stocks #investing

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𝐃𝐈𝐒𝐂𝐋𝐎𝐒𝐔𝐑𝐄‼️: 𝐓𝐡𝐢𝐬 𝐢𝐬 𝐍𝐎𝐓 𝐈𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐀𝐝𝐯𝐢𝐜𝐞. 𝐁𝐚𝐛𝐲𝐥𝐨𝐧 𝐂𝐚𝐩𝐢𝐭𝐚𝐥® 𝐚𝐧𝐝 𝐢𝐭𝐬 𝐫𝐞𝐩𝐫𝐞𝐬𝐞𝐧𝐭𝐚𝐭𝐢𝐯𝐞𝐬 𝐦𝐚𝐲 𝐡𝐚𝐯𝐞 𝐩𝐨𝐬𝐢𝐭𝐢𝐨𝐧𝐬 𝐢𝐧 𝐭𝐡𝐞 𝐬𝐞𝐜𝐮𝐫𝐢𝐭𝐢𝐞𝐬 𝐝𝐢𝐬𝐜𝐮𝐬𝐬𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭.

𝐓𝐡𝐞 𝐢𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧 𝐜𝐨𝐧𝐭𝐚𝐢𝐧𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭 𝐢𝐬 𝐢𝐧𝐭𝐞𝐧𝐝𝐞𝐝 𝐟𝐨𝐫 𝐢𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧𝐚𝐥 𝐩𝐮𝐫𝐩𝐨𝐬𝐞𝐬 𝐨𝐧𝐥𝐲 𝐚𝐧𝐝 𝐬𝐡𝐨𝐮𝐥𝐝 𝐧𝐨𝐭 𝐛𝐞 𝐜𝐨𝐧𝐬𝐭𝐫𝐮𝐞𝐝 𝐚𝐬 𝐢𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐚𝐝𝐯𝐢𝐜𝐞 𝐭𝐨 𝐦𝐞𝐞𝐭 𝐭𝐡𝐞 𝐬𝐩𝐞𝐜𝐢𝐟𝐢𝐜 𝐧𝐞𝐞𝐝𝐬 𝐨𝐟 𝐚𝐧𝐲 𝐢𝐧𝐝𝐢𝐯𝐢𝐝𝐮𝐚𝐥 𝐨𝐫 𝐬𝐢𝐭𝐮𝐚𝐭𝐢𝐨𝐧. 𝐏𝐚𝐬𝐭 𝐩𝐞𝐫𝐟𝐨𝐫𝐦𝐚𝐧𝐜𝐞 𝐢𝐬 𝐧𝐨 𝐠𝐮𝐚𝐫𝐚𝐧𝐭𝐞𝐞 𝐨𝐟 𝐟𝐮𝐭𝐮𝐫𝐞 𝐫𝐞𝐬𝐮𝐥𝐭𝐬.

𝐈𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧 𝐜𝐨𝐧𝐭𝐚𝐢𝐧𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭 𝐡𝐚𝐬 𝐛𝐞𝐞𝐧 𝐨𝐛𝐭𝐚𝐢𝐧𝐞𝐝 𝐟𝐫𝐨𝐦 𝐬𝐨𝐮𝐫𝐜𝐞𝐬 𝐛𝐞𝐥𝐢𝐞𝐯𝐞𝐝 𝐭𝐨 𝐛𝐞 𝐫𝐞𝐥𝐢𝐚𝐛𝐥𝐞, 𝐛𝐮𝐭 𝐢𝐬 𝐧𝐨𝐭 𝐠𝐮𝐚𝐫𝐚𝐧𝐭𝐞𝐞𝐝 𝐚𝐬 𝐭𝐨 𝐜𝐨𝐦𝐩𝐥𝐞𝐭𝐞𝐧𝐞𝐬𝐬 𝐨𝐫 𝐚𝐜𝐜𝐮𝐫𝐚𝐜𝐲.
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⁠Quiver Quantitative
RT @InsiderRadar: Carl Icahn has just disclosed a purchase of ~$3.8M of $UAN stock.

This adds to his existing $260M position in the company. https://t.co/t7X2k0HKta
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⁠iinvested
3Q'24 Long Cast Advisers on $CCRD

More fund letters here:
https://t.co/ccjFhSPQ2v https://t.co/CprucW178r
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⁠Startup Archive
Steve Jobs on the most important job of a CEO

“The greatest people are self-managing. They don’t need to be managed. Once they know what to do, they’ll go figure out how to do it… What they need is a common vision, and that’s what leadership is. Leadership is having a vision, being able to articulate that so the people around you can understand it, and getting consensus on a common vision.”

Steve continues:

“We wanted people who were insanely great at what they did… and the neatest thing that happens when you get a core group ten great people is that it becomes self-policing as to who they let into that group. So I consider the most important job of someone like myself is recruiting.”
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⁠Startup Archive
RT @mikemcg0: TLDR: the most important job of the CEO is recruiting

Steve Jobs on the most important job of a CEO

“The greatest people are self-managing. They don’t need to be managed. Once they know what to do, they’ll go figure out how to do it… What they need is a common vision, and that’s what leadership is. Leadership is having a vision, being able to articulate that so the people around you can understand it, and getting consensus on a common vision.”

Steve continues:

“We wanted people who were insanely great at what they did… and the neatest thing that happens when you get a core group ten great people is that it becomes self-policing as to who they let into that group. So I consider the most important job of someone like myself is recruiting.” - Startup Archive
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⁠Startup Archive
RT @justin_alb88: Self-policing the "standard" is the force multiplier any "A" player brings to an org.

Define the vision & culture you want and then seed the org w/ "A" players that align and it becomes self-sustaining.

Steve Jobs on the most important job of a CEO

“The greatest people are self-managing. They don’t need to be managed. Once they know what to do, they’ll go figure out how to do it… What they need is a common vision, and that’s what leadership is. Leadership is having a vision, being able to articulate that so the people around you can understand it, and getting consensus on a common vision.”

Steve continues:

“We wanted people who were insanely great at what they did… and the neatest thing that happens when you get a core group ten great people is that it becomes self-policing as to who they let into that group. So I consider the most important job of someone like myself is recruiting.” - Startup Archive
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⁠Stock Analysis Compilation
Donville Kent on Zedcor $ZDC CN

Thesis: Zedcor’s highly profitable, rapidly expanding security tower business, with 40% IRR and a large untapped market, positions it as a potential long-term compounder with massive growth potential

(Extract from their Q3 letter) https://t.co/UGNxT5vgSv
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⁠App Economy Insights
📊 This Week in Visuals: $BRK $NVO $CVX $QCOM $ARM $ANET $SONY $MELI $PLTR $ABNB $RACE $MAR $FTNT $TTD $CPNG $SQ $YUM $HSY $NET $HUBS $TTWO $QSR $PINS $EXPE $WBD $DKNG $TOST $AFRM $DUOL $PCOR $Z $MTCH $LYFT $HIMS $DOCN

Check out the latest earnings👇
https://t.co/pixu9hIdtC https://t.co/fgkPcBZlYO
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