Will Zoetis (ZTS) Pull a Surprise this Earnings Season?

Zacks

Zoetis Inc. (ZTS) is scheduled to report third-quarter 2014 results before the opening bell on Nov 4. Last quarter, the company posted a negative earnings surprise of 2.56%. The company has recorded positive earnings surprises in two of the four trailing quarters with an average beat of 0.04%. Let’s see how things are shaping up for this announcement.

Factors at Play this Quarter

Zoetis’ robust and diversified product portfolio should help support revenues. The company’s livestock segment should continue to do well. Newly launched products – Actogain and Engain – have been performing better than expected.

The company had launched Apoquel earlier this year. Significant levels of customer demand have led to a supply shortage of the product. The company is working on increasing the supply of the product, which is expected by April next year.

We note that Zoetis is the former Animal Health business of Pfizer Inc. (PFE). The company is working on building global manufacturing and supply functions, which may lead to higher costs.

Zoetis’ revenues were hurt by 6% in the second quarter of 2014 by adverse foreign currency movements. Negative foreign currency fluctuations can prove to be a threat in this quarter as well.

Earnings Whispers?

Our proven model does not conclusively show that Zoetis is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here, as you will see below.

Zacks ESP: Earnings ESP for Zoetis is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 37 cents per share.

Zacks Rank: Zoetis carries a Zacks Rank #3 (Hold). Zoetis’ Zacks Rank #3 when combined with an ESP of 0.00% makes surprise prediction difficult.

We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks that Warrant a Look

Here are some companies you may want to consider as our model shows that these have the right combination of elements:

Actavis (ACT) has an Earnings ESP of +0.32% and holds a Zacks Rank #1 (Strong Buy). The company will report third-quarter results on Nov 5.

Hospira Inc. (HSP) has an earnings ESP of +7.55% and carries a Zacks Rank #3. It is expected to report third-quarter results on Nov 6.

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