Our options trading activities will take a new dimension today as we consider trading the options of companies involved in animal health medicines. We start this series by exploring the possibilities inherent in the options of Zoetis Inc. (NYSE:ZTS).
Zoetis with its market capitalization of $16.89B is engaged in the discovery, development, manufacture and commercialization of animal health medicines and vaccines, with a focus on both livestock and companion animals. The primary livestock species are cattle (both beef and dairy), swine, poultry, sheep and fish, and the primary companion animal species are dogs, cats and horses.
Technical Indicators Show Bullish Momentum
The stock chart above shows how shares of Zoetis have traded within the last three months. You will observe that the stock has gained 6.1% within the last three months. The stock is trading above its 20, 50 and 200-day moving averages while recording six new highs within the last one month. I am especially attracted to the stock’s RSI index of 66.84, which suggests increased upside potential ahead.
Fundamental Analysis to Support a Bullish Position
With a market capitalization of $16.89B, Zoetis is easily a leader by market capitalization in its industry and Zoetis is in fact the largest global animal health company. A good point to note is that Zoetis released decent Q2 2014 results on August 5. The company reported earnings of $0.38 per share to beat the earnings from the year-ago quarter by $0.02. Zoetis reported revenue of $1.2B to mark a 4% year-over-year increase.
Revenue is expected to soar by 3.50% this year and Zoetis expects its revenue to increase by 5.80% in fiscal 2015. Zoetis expects its earnings to increase by 7.70% in FY 2014, the company expects a 13.10% increase in fiscal 2015 and the company projects that its earnings will increase by about 12.76% annually until year 2020.
Building a Strong Presence in Emerging Markets
Another reason I am optimistic about the upside potential in trading ZTS options is that Zoetis is working towards increasing its market share in emerging markets. The developed markets have already been fragmented and the market share is probably reaching a point of saturation. However, emerging markets provide the next frontier where animal health medicine companies can expect growth in the next couple of years.
It might interest you to know that Zoetis is set for a significant increase in revenue from China as the company announced the introduction of on-farm screening for sub-clinical mastosis and ketosis in cattle. Quoting Qing Wang, General Manager for Zoetis in China “in China, the incidence of sub-clinical mastitis and ketosis is about 10-30% with as many as 1.5 million milking cows at risk of these illnesses.”
In 2013, about 26% of revenues reported by Zoetis were reported in emerging markets. I strongly believe that the company’s diversified brands in vaccines, anti-infectives, medicated feed additives and parasiticides among others will drive growth in the top and bottom lines for the company going forward.
How to Trade ZTS Options
I am bullish on Zoetis and it is hard not to be optimistic about the potentials inherent in shares of Zoetis. I have a $38 price target on Zoetis in the next six months and I recommend buying the ZTS Jan 2015 35.000 call (ZTS150117C00035000) at an asking price of $1.30.
— Daily Option Alerts