Still think TITNC3: Return of the Iceberg was peak

TreeFortRichard · May 2, 2024

TreeFortRichard said: ↑

Buying more $ZTS here at $146
Click to expand...

Posted on 4/19...$166 today

Pops on earnings today...

Articles abound about this stock available on discount $20 later

1 Magnificent Dividend Growth Stock That's Down 40% and Trading at a Once-in-a-Decade Valuation
Josh Kohn-Lindquist, The Motley Fool
6–8 minutes
So far, 2024 has been a year to forget for animal healthcare juggernaut Zoetis (NYSE: ZTS). Hit by the triple whammy of weak earnings, a formal investigation from the European Commission, and adverse events linked to some of its newest medicines, Zoetis has seen its share price plunge 27% this year and 40% from its all-time highs.

We will get to these issues in a moment, but the silver lining to these recent developments is that Zoetis shares now trade at a once-in-a-decade valuation. So this begs the question: Is Zoetis now a fundamentally flawed business destined to continue dropping? Or is this sell-off a unique opportunity for investors willing to buy and hold for a decade and beyond?

Here's why I'm leaning toward the latter.

Image source: Getty Images.

Is Zoetis stock losing its bite?
Zoetis is the global leader in medicines, diagnostics, vaccines, and beyond for the companion animal (cats and dogs) and livestock (cattle, swine, horses, fish, and sheep) markets. Selling in over 100 countries, Zoetis is the global market share leader (by species) in categories that comprise over 90% of its total sales.

This dominant positioning in the animal healthcare industry has helped the company deliver total returns of over 400% since its 2013 spinoff from Pfizer. However, after outpacing the returns of the S&P 500 index for more than a decade, Zoetis stock has struggled recently after three red flags appeared.

Missed earnings and disappointing guidance
Despite growing earnings per share (EPS) by 15% in the fourth quarter, Zoetis missed analysts' EPS estimates by $0.08. Making matters worse, the company also guided for 2024 EPS slightly below analysts' expectations.

As disappointing as these shorter-term figures were, 2023 marked the company's 11th consecutive year of growing faster than the animal health industry. The power of this longer-term trend is far more helpful in analyzing the strength of Zoetis' operations than what analysts may expect over any given 90-day period.

With the animal healthcare market expected to grow by a 5% clip annually through 2032, there should be no shortage of growth in the company's immediate future.

An investigation by the European Commission
In March, the European Commission opened an investigation to determine whether Zoetis breached some of the European Union's competition rules. Regarding the company's Librela osteoarthritis medicine for dogs, the investigation will consider whether Zoetis acquired a peer with a similar product only to shut it down shortly after. Zoetis has replied that it is confident "any potential concerns are unfounded."

Regardless of how this investigation pans out, it shouldn't prove to be a thesis-breaking development for Zoetis investors. Home to 15 blockbuster drugs generating over $100 million in annual sales -- across 300 product lines -- Zoetis is well-diversified and not at risk of crumbling over any single medicine.

Osteoarthritis medicines' adverse events
Meanwhile, Zoetis shares were hit by a report in The Wall Street Journal that the European Medicines Agency (EMA) has cited about 20,000 "adverse events" from the use of Librela, along with its cat-helping sister drug, Solensia. Zoetis has reiterated that the drugs are safe and noted that the side effects amount to less than 1% of the more than 18 million shots administered.

Furthermore, not only are both drugs already Food and Drug Administration approved, but vets in Europe have given Librela a rating of 8.6 out of 10 -- the highest of any osteoarthritis drug.

While management believes Librela and Solensia could reach peak sales of $1 billion annually over the next decade, this fledgling growth area won't be a make-or-break proposition for Zoetis, which registered $8.5 billion in sales in 2023.

Steady profitability, a rising dividend, and a once-in-a-decade valuation
Zoetis' history of successful research and development (R&D) can clearly be seen in its consistently improving return on invested capital (ROIC), which recently hit 20%.

ZTS Return on Invested Capital Chart

Measuring the company's profitability compared to its debt and equity, Zoetis' high and rising ROIC showcases that management is excellent at reinvesting in its operations through R&D. This 20% ROIC is double the average of the S&P 500 index, demonstrating that Zoetis continues to grow stronger with each passing year.

Armed with this robust profitability, management has lowered the company's share count by 1% annually, boosting its EPS figures over time. Additionally, it has grown its dividend by 22% each year over the last decade, raising its payments more than fivefold over that time. Despite these increases, Zoetis' dividend payments only use 30% of the net income it earned, leaving a long runway ahead for future growth.

The cherry on top for investors? Due to the short-term issues facing the company, Zoetis trades at a once-in-a-decade valuation, with a price-to-earnings (P/E) ratio of 30 and a dividend yield of 1.1%.

ZTS PE Ratio Chart

Ultimately, Zoetis' discounted valuation and leadership position in the animal healthcare space make it a premium business available at a fair price -- regardless of the short-term issues facing the company today.

Should you invest $1,000 in Zoetis right now?
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98tacoma27 · May 2, 2024

Sssshhhhh.....

TreeFortRichard · May 2, 2024

98tacoma27 said: ↑

Sssshhhhh.....
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TreeFortRichard · May 2, 2024

How does the takeover of $PARA by sony make a worthless retail stock spike in parallel?

Caboose117 · May 2, 2024

TreeFortRichard said: ↑

Needed to get in on that before yesterday....they all went up massively yesterday...
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Won’t really matter til cannabis growing is rescheduled as agriculture

TreeFortRichard · May 2, 2024

Caboose117 said: ↑

Won’t really matter til cannabis growing is rescheduled as agriculture
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maybe we can get hemp paper back from Mr. Hearst and his devils lettuce propaganda...

TreeFortRichard · May 2, 2024

THis is some CRAAAAAAZY shit..
the company teaming up with sony to by $PARA
https://www.ft.com/content/71849085-79c4-4dcf-a032-c4ad90a730fc

Was making BILLIONS off stranger life insurance policies? Taking out life insurance through trusts on....random old people...
https://www.ft.com/content/71849085-79c4-4dcf-a032-c4ad90a730fc

Inside Apollo’s alleged grim-reaper gamble
Bryce Elder
8–10 minutes
Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

The death of Martha Barotz was the start of her problems. It might now become Apollo’s problem. Per Bloomberg:

Apollo Global Management Inc bet on the longevity of senior citizens by acquiring illegal life insurance policies and funneling the payouts through shell entities, according to a new lawsuit.

The private equity giant allegedly set up a web of sham trusts — using a secretive affiliate called Financial Credit Investment — to hold a portfolio of stranger-originated life insurance policies worth roughly $20 billion. Taking out life insurance on a stranger is “anathema to hundreds of years of public policy” and a violation of the Delaware Constitution, the suit says.

“Apollo has been carrying out a widespread fraudulent human life wagering conspiracy designed to not only hide its involvement, but to create the false appearance that the policies it owns are somehow legitimate,” according to the complaint. “Worse still, when Apollo senses a claim is going to be brought, it attempts to dissolve its shell entities to give itself yet another layer of protection.”

The full complaint is here (PDF). The legal team representing the Estate of Martha Barotz declined to comment. Apollo told us by email:

We believe these claims are baseless. While we generally refrain from commenting on ongoing litigation, we want to be clear that Financial Credit Investment I, a fund previously managed by our affiliates, never participated in the origination of any life insurance policy.

Let’s rewind. Here’s how it started.

In 2006, New York State resident Martha Barotz was paid $150,000 upfront by Life Accumulation Trust III (LATIII), which took out insurance that would pay out a $5mn lump sum on her death.

Barotz, who at the time was in her early 70s, agreed to form an eponymous Delaware statutory trust, after which she signed away control to LATIII. It was LATIII that took out the policy, paid all the premiums, and was its sole benefactor.

In 2011, LATIII sold the Barotz trust to a fund allegedly controlled by Apollo. This fund banked the $5mn lump sum when Barotz died in 2018, aged 83.

Stranger-owned life insurance policies, known as STOLIs, were very popular in the late 2000s in spite of being illegal nearly everywhere. Life insurance policies are freely transferable but if the benefactor has no familial connection to the deceased they can be voided.

In most states, an insurer can sue a benefactor to void a policy. For the insurer this made writing dodgy business a win-win, since it could keep the premiums as well as the lump sum, so some jurisdictions including Delaware allow the victim or their family to sue and claim the death benefit.

The Barotz family has been trying for several years to void the policy taken out on Martha’s life. The latest complaint alleges that the trust Barotz set up was “a sham entity” and that, having collected on her death, the defendants . . .

... went to great lengths to move those proceeds through a complex maze of purported trusts and other entities in an effort to thwart Delaware law and hinder the Estate’s ability to recover those proceeds. All of these efforts were fraudulent and illegal —and Defendants were well aware they were violating Delaware law.

In January the Superior Court of Delaware ruled in favour of the Barotz estate and ordered a $6.9mn payout (final judgement here). Even though Barotz could be seen to have participated in the scheme, having immediately received 3 per cent of the face value of insurance taken out, it didn’t invalidate Delaware’s public policy against human life wagers, the judge said.

According to the estate’s new suit, the defendants tried to evade the judgment by stripping cash from liable entities and by engineering their insolvencies. Financial Credit Investment 1, the entity Apollo refers to in its above statement, is part of what the complaint calls the FCI suite of funds:

Despite its purported corporate legitimacy, FCI and the various trusts it purportedly owned were, in reality, a conglomerate of shell entities and empty statutory trusts that served as puppets for the ultimate director and financial beneficiary who sits behind the curtain pulling the strings: Apollo.

Wells Fargo and Wilmington Savings Fund Society are named in the suit having allegedly provided administration services to FCI. They have been contacted for comment.

How big a deal might all this be? The complaint quotes previous trial testimony from William Sullivan, “an Apollo employee who served as the managing director of the FCI suite of funds between 2010 and at least 2019” (our emphasis added and case references removed):

“FCI is mainly focused on longevity mortality risk assets,” which are “most sensitive to the risk of people living longer or not . . . by buying life insurance policies that people no longer need anymore and would otherwise surrender back to the carrier.”

The “mortality risk assets” which FCI sources and “isolate,” are simply Wall Street jargon for STOLI policies, such as the illegal human life wager taken on Mrs. Barotz life.

Because “FCI has a lot of capital put to work,” the suite of funds does not dabble in the individual policy market but, instead, “only purchase portfolios of policies from existing investors . . . that have already aggregated a portfolio,” otherwise referred to as the “tertiary market.”

FCI’s managing director estimated that, as of 2019, the tertiary life settlement market generated “between 80 and 90 billion policy face.” Within that figure, “FCI’s presence is . . . probably the largest investor in this special asset,” with an estimated $20 billion aggregate investments as of 2019.

There’s an obituary here for Barotz, though it might not fully reflect her legacy.

Update May 1st: Apollo has emailed this statement:

A life insurance policy is one of the most important assets in a person’s financial life; it can provide certainty and financial security unlike any other asset can. Courts repeatedly have upheld a person’s right to sell his/her insurance policy, much like any other financial asset, and that is what the original policyholder voluntarily did here. People choose to sell their policies for any number of reasons personal to them, and a robust and entirely legal market exists to purchase those policies. The life settlement market developed in response to seniors’ and retirees’ need for liquidity, and provides the opportunity for seniors and retirees to maximize the value of life insurance policies they no longer need or cannot afford to continue to own. In the years leading up to the GFC, large banks and other financial institutions acquired a substantial amount of life settlements that were owned on their balance sheets.

Apollo established Financial Credit Investment I (“FCI I”) in 2010 coming out of the GFC as a vehicle to acquire pools of life settlements and other insurance-linked securities from banks and other large financial institutions who needed to raise capital amidst the GFC and chose to sell portfolios of life settlements in that effort. FCI I was formed to generate compelling uncorrelated investment returns and provide attractive financial outcomes in the life settlements industry, proving successful in both regards. Importantly, FCI I never participated in the origination of any life insurance policy. The law firm that brought this current lawsuit has a cottage-industry practice of challenging life settlements all over the United States, including some in which the FCI funds or their subsidiaries are indirect beneficial owners. The defendants in those cases have largely been successful in defeating this law firm’s claims. In this particular case, the Delaware court found that the original issuance of the policy in 2006, as opposed to anything FCI did, was improper under Delaware insurance law. The original lawsuit on this policy was filed in 2020 – four years ago – and does not allege any wrongdoing by Apollo or Athene; rather it simply seeks to recover assets from a fund, FCI I, that was wound down in 2019 in an orderly and common process before the original lawsuit was even filed. Importantly, this lawsuit only involves FCI I and related entities, and does not have any bearing on other Apollo businesses or funds. We believe these claims to be baseless and the suit’s description of Apollo’s historic activities within the life settlements market to be a gross mischaracterization, disingenuous, and flat out wrong.
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https://d1e00ek4ebabms.cloudfront.net/production/uploaded-files/Apollo Stoli 2024.04.26 Verified Complaint-22a3f01c-4337-4259-9b46-5cfd8c830b09.pdf

not_nick · May 2, 2024

TreeFortRichard said: ↑

THis is some CRAAAAAAZY shit..
the company teaming up with sony to by $PARA
https://www.ft.com/content/71849085-79c4-4dcf-a032-c4ad90a730fc

Was making BILLIONS off stranger life insurance policies? Taking out life insurance through trusts on....random old people...
https://www.ft.com/content/71849085-79c4-4dcf-a032-c4ad90a730fc

https://d1e00ek4ebabms.cloudfront.net/production/uploaded-files/Apollo Stoli 2024.04.26 Verified Complaint-22a3f01c-4337-4259-9b46-5cfd8c830b09.pdf
Click to expand...

That statement from apollo at the end is pretty funny. A bunch of word salad trying to say how what they're doing is perfectly legal and good. ....but like ....If it's okay than why are yall making multiple shell companies to distance yourself from the activity?!

TenBeers · May 3, 2024

That's some shady stuff there. "But everyone else was doing it . . ."

jandrews · May 3, 2024

Jobs report indicates cooling.

Earnings remain solid.

Core PCE staying near target.

If CPI April comes back steady or lower MoM, then get the rocket ready.

kairo · May 3, 2024

Gamestonk

theesotericone · May 3, 2024

kairo[OP] said: ↑

Gamestonk
Click to expand...

is still overvalued?

pittim · May 3, 2024

theesotericone said: ↑

is still overvalued?
Click to expand...

Better not be

kairo · May 3, 2024

theesotericone said: ↑

is still overvalued?
Click to expand...

I just keep buying the dips

Beavis5220 · May 3, 2024

A stock group!! I'm newish to the forum but not new to stonks......currently long in AMAZN, GOOG, and SPY and day-trade quite a bit....current darling is AGBA : )

Looking forward to the group!

tacoma_ca · May 3, 2024

Beavis5220 said: ↑

A stock group!! I'm newish to the forum but not new to stonks......currently long in AMAZN, GOOG, and SPY and day-trade quite a bit....current darling is AGBA : )

Looking forward to the group!
Click to expand...

So what is the future lineup with AGBA?

Beavis5220 · May 3, 2024

tacoma_ca said: ↑

So what is the future lineup with AGBA?
Click to expand...

hopefully a slow rise to $5 through this month then to $10+ when the merger happens

kairo · May 3, 2024

Beavis5220 said: ↑

A stock group!! I'm newish to the forum but not new to stonks......currently long in AMAZN, GOOG, and SPY and day-trade quite a bit....current darling is AGBA : )

Looking forward to the group!
Click to expand...

How much GME do you have?

kairo · May 3, 2024

Agrabah

Beavis5220 · May 3, 2024

kairo[OP] said: ↑

How much GME do you have?
Click to expand...

haha......none

but in the past...........

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TreeFortRichard Barcelona Red is the best red...

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TreeFortRichard Barcelona Red is the best red...

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