Zoetis (ZTS) Gears Up For Q1 Earnings: What's In Store?

Zoetis Inc. (NYSE:ZTS) is scheduled to report first-quarter 2018 results on May 2, before the opening bell.

Zoetis’ performance has been encouraging, with the company surpassing expectations in each of the previous four quarters. The average positive earnings surprise over the last four quarters is 4.54%.

Zoetis’ share price movement shows that the stock has outperformed the industry on a year-to-date basis. The stock has moved up 17.8% against the industry’s decline of 2.1% during this period.

Let's see how things are shaping up for this announcement.

Factors to Consider

Zoetis derives the majority of its revenues from a diversified product portfolio of medicines and vaccines used to treat and protect livestock and companion animals. The company continues to strengthen its diverse products portfolio through lifecycle innovations, strong customer relationships and access to new markets and technologies.

The company reported impressive results through 2017, mainly driven by strong demand for its companion animal business. Zoetis’ dermatology drugs – Apoquel, Cytopoint and Simparica – have performed well due to increased penetration and continued uptake. We expect the trend to positively impact first-quarter results.

Moreover, the company is working on expanding the reach of Simparica. It received approvals in several countries and for new indications in the fourth quarter of 2017. These will further boost the sales. In December 2017, the company announced the launch of Vanguard CIV H3N2/H3N8, the latest vaccine in the company’s canine influenza virus (“CIV”) portfolio.

In the fourth quarter of 2017, livestock sales were driven by sales of cattle and poultry products. However, favorable weather drove incidence of disease risk higher in cattle.

We expect the company to throw more light on its acquisition strategy and its impact on its pipeline, following the acquisition of Nexvet Biopharma, an innovator in monoclonal antibody therapies for companion animals, in July 2017.

What Our Model Indicates

Our proven model shows does not conclusively show an earnings beat for Zoetis in the to-be reported quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to be able to beat estimates. But that is not the case here, as you will see below.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate (loss of 69 cents) and the Zacks Consensus Estimate (loss of 70 cents), is -0.72%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Zoetis currently has a Zacks Rank #3, which increases the predictive power of ESP. However, we need to have a positive ESP to be confident of an earnings beat.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Here are some biotech stocks that you may want to consider, as our model shows that they have the right combination of elements to post an earnings beat in their upcoming release.

Emergent Biosolutions Inc. (NYSE:EBS) has an Earnings ESP of +61.8% and a Zacks Rank #2. The company is scheduled to release Q1 results on May 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Vanda Pharmaceuticals Inc. (NASDAQ:VNDA) has an Earnings ESP of +25% and a Zacks Rank #2. The company is scheduled to release first-quarter results on May 2.

Adverum Biotechnologies, Inc. (NASDAQ:ADVM) has an Earnings ESP of +6.9% and currently carries a Zacks Rank #3. The company is expected to release first-quarter results on May 8.

The Hottest Tech Mega-Trend of All

Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.

See Zacks' 3 Best Stocks to Play This Trend >>