We seek companies with good or improving ESG characteristics – and the latter has the potential to unlock significant value. Indeed, our research has found that companies who have managed their ESG risks have historically outperformed over the long-term. One such example that demonstrates good ESG characteristics is Zoetis, a leading global animal health company that produces vaccines and medicines for both pets and farm animals.
A deep dive into Zoetis’ fundamentals shows that it is a well-run company. It has demonstrated strong growth, recording revenue growth of 10% to $6.3bn in 2019. However, in May, Zoetis lowered its full-year guidance citing uncertainties posed by the coronavirus (such as expected recessionary conditions in the global economy and FX headwinds).
Nevertheless, our strategy has a long-term focus and the Alpha Model – our proprietary automated analyst which assesses the attractiveness of companies in the investable universe from multiple angles over the long term – shows that sentiment towards the company remains positive and it has a reasonable valuation relative to its peers. It looks most attractive based on profitability metrics, with positive trends in both net and gross margins. As a result of its recent earnings growth and owing to the essential role it plays in sustaining and protecting animal life, we view Zoetis as a resilient, attractive investment – despite recent downward revisions to its full-year guidance.
Engaging on animal health
From an ESG perspective, Zoetis is less exposed to ESG risks than human-focused pharmaceutical companies. In addition, the company has no material ESG-related controversies. Alongside our colleagues at EOS, we engage with Zoetis. Thus far, the company has been receptive to our engagements: we have had in-person meetings and calls with members of the Investor Relations and Innovations teams. We have been engaging on the topic of antibiotic stewardship, encouraging the company to establish a global policy and implement pollution limits in its manufacturing process. In addition, we have been engaging to encourage the company to increase gender diversity on the board and improve its disclosures around human capital management.
To dive into the details of Zoetis’ fundamentals and ESG characteristics as well as our engagements with the company, read the full case study here.