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Zoetis Inc. (ZTS) Intrinsic Value

DCF-based fair value calculation with Bear, Base, and Bull scenarios

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Zoetis Inc. (ZTS)

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Intrinsic Value (DCF)

Current$125.28
→
Intrinsic$106.00
-15%
$67.67$106.00$182.27
Market implies 16% growth for 5 years
ZTS trades at a premium to our conservative estimate — investors expect above-average performance.
At $125, the market prices in continued high-teens cash flow growth (16%) — likely reflecting buybacks, margin stability, and ecosystem strength.
Range: Bear $68 → Bull $182. Current price implies expectations above the base case, closer to bull expectations.
Discount ↓Growth →8%10%12%14%
8%$133$146$160$175
10%$88$97$106$116
12%$65$71$78$85
14%$50$55$60$66

Bull Case

  • Bull case ($182) offers 45% upside at 14% growth, 8% discount
  • Conservative 12% growth assumption is achievable based on track record

Bear Case

  • Bear case ($68) implies 46% downside at 10% growth, 12% discount
  • Price reflects 16% growth expectations vs 12% historical — high bar to clear
  • Trading 15% above base case — execution must exceed assumptions to justify
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5-Year Free Cash Flow Projection

Year 1$2.57B
Year 2$2.88B
Year 3$3.22B
Year 4$3.61B
Year 5$4.04B
Terminal$64.05B

📐 Model Inputs

Growth Rate12.0%5Y CAGR (cascade: 5Y→3Y→TTM)
Discount Rate9.5%WACC estimate
Terminal Growth3.0%Perpetuity rate
Base Free Cash Flow$2.30BTTM actual
Bear g×0.8, r+2%
Base Historical CAGR
Bull g×1.2, r−1.5%
ℹ️

DCF estimates based on historical growth rates extrapolated forward. See FAQ below for full methodology.

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Frequently Asked Questions

Is ZTS stock undervalued or overvalued?
🔴 OVERVALUED

ZTS trades at $125.28 vs. our DCF-derived intrinsic value of $106.00, implying -18% downside. Using a 9.5% WACC and 12.0% FCF growth assumption, the current price requires growth rates above our estimates to be justified. Even our bull case ($158.08) suggests limited upside.

What is ZTS's intrinsic value?

Using a 5-year DCF model: Base FCF of $2.30B, projected at 12.0% 5Y CAGR (best of revenue, EPS, or FCF growth), discounted at 9.5% WACC, with 3.0% terminal growth. Terminal value calculated via Gordon Growth Model: TV = FCF₅ × (1+g) / (WACC−g). After deducting $4.76B net debt and dividing by 0.45B shares: Bear $69.60 | Base $106.00 | Bull $158.08. Current price $125.28 implies -18% to base case.

How is ZTS's fair value calculated?

DCF Methodology:

① Project FCF years 1-5 using 12.0% growth derived from 5-year historical CAGR (best of revenue, EPS, or FCF growth, with 8% floor and 25% cap).

② Calculate terminal value at year 5 using perpetuity growth model with g=3.0%.

③ Discount all cash flows to PV using WACC=9.5%.

④ Sum PV of explicit period + PV of terminal value = Enterprise Value ($52.97B).

⑤ Subtract net debt, divide by shares outstanding.

Sensitivity analysis available above—adjust WACC ±2% or growth ±3% to stress-test the valuation. Implied EV/FCF multiple: 23.1x.