It’s not a sector as red-hot as artificial intelligence, but pet stocks warrant investor attention in 2024. According to PetExec, U.S. households spend over $136 billion per year on their pets. This spending has increased nearly every year for the past 20 to 30 years. That trend shows no sign of slowing down. Pets are big business.
That type of growth has caused investors to become interested in pet stocks. Two pure-play names to consider are Zoetis Inc. (NYSE: ZTS) and Chewy Inc. (NYSE: CHWY).
Zoetis and Chewy may seem like an odd pair to compare. The two companies are both in the pet sector, but that’s where the easy comparisons end. Zoetis is part of the medical stock sector because it is wholly focused on the animal healthcare business. Chewy is more of a play on overall pet spending, which puts it in the retail stock sector.
As such, ZTS stock and CHWY stock have different investment cases. Here’s a brief look at what investors may want to consider before buying either of these pet stocks.
Zoetis is Meeting Pet Owners Where They’re At
Zoetis is the world’s leading animal health company. Its business model focuses on using science to “create longer, more fulfilling lives for pets.” In an interview after the company’s quarterly earnings, chief executive officer (CEO) Wetteny Joseph explained why consumers might cut back on some discretionary pet spending, but healthcare is non-negotiable.
ZTS stock is down 6.14% in 2024, but it’s up more than 9% since the company’s first-quarter earnings report. The stock may get an additional tailwind from its second-quarter report, which was a bullish “beat and raise.” The company delivered earnings of $1.56 per share on revenue of $2.36 billion, which were higher than the $1.41 EPS and $2.12 billion it had posted in the same quarter in 2023.
Zoetis also raised its guidance to include:
- Revenue between $9.1 to $9.25 billion
- Reported net income between $2.450 billion to $2.490 billion
- Adjusted net income between $2.640 billion to $2.690 billion
- Reported diluted EPS of $5.35 to $5.45
- Adjusted diluted EPS between $5.78 to $5.88
The Case for Chewy Starts with Explosive Earnings Growth
Chewy stock is flat in 2024, but this is a case where context really matters. The stock has increased more than 50% in the last three months since the company crushed its first-quarter earnings report. Some of the highlights included:
- Non-GAAP EPS of 15 cents, beating analysts’ estimates by 11 cents
- Adjusted EBITDA of $162.9 million, a YoY increase of $52.1 million
- Adjusted net income up 49.1% YoY
- Gross margin up 29.7% YoY
While Chewy doesn’t issue dividends, the company rewarded shareholders by authorizing a $500 billion share buyback program. More of the same is expected from Chewy when it reports earnings in late August.
While Chewy doesn’t compete directly with Zoetis, it has made a notable shift to expand its services into the pet insurance and pet wellness sectors. Through Chewy CarePlus, members can pay for pet insurance directly to the veterinarian if they wish. The program also provides 100% drug coverage with no payout limits and offers telehealth services.
And the Winner Is...
In the end, these two stocks play different roles in a portfolio. It’s not surprising that I have a split decision.
As a trade, I like Chewy. The stock looks to have found a base of support around the $22 level. That should take away the downside risk. But what about the upside? The Chewy analyst forecasts on MarketBeat give CHWY stock a Moderate Buy rating with a $27.01 price target. That’s an 11% gain from its price as of this writing.
The company reports earnings on August 28. A strong report with raised guidance will send those price targets higher. That could put the company's 52-week high in play and offer investors a much more attractive 23% gain.
However, if I’m looking for a stock to give a forever home to (or at least a long-term one), I like Zoetis. The stock is on track for high single-digit earnings growth that is not priced into ZTS stock. Plus, investors get a dividend that’s been growing for 13 consecutive years, and that growth is happening at about 23% annually. Plus, the payout ratio of around 33% makes the dividend stable and attractive, even with a yield of just 0.94%.
