Bill Ackman Is Selling Zoetis But Other Gurus Are Jumping In

Bill Ackman (Trades, Portfolio) is said to be preparing to partially withdraw from pet health care company Zoetis (NYSE:ZTS) where he had waged an activist campaign, but first-quarter portfolios rolling in this month already show several other well-known managers have piled in.

Anonymous sources told The New York Times and Bloomberg that Ackman offered 16.9 million of his Zoetis shares up for sale starting Monday. The sell represented roughly 40% of his total stake of 41,823,145 shares.

Ackman’s hedge fund, Pershing Square, foreshadowed its exit April 22 when it announced its representative on the company’s board, William Doyle, would not stand for re-election at the annual meeting. The meeting is scheduled for May 12, three days after Ackman began to dispose of his stake.

In the little over year and a half since Ackman started targeting Zoetis, its price climbed roughly 48%. At his calculated average buy price of $40 per share, Ackman has an estimated total gain of 17% on the holding as of Tuesday.

With five days left for large investment firms to report their first-quarter trades, already two tracked by GuruFocus have reported stakes in Zoetis: Robert Olstein (Trades, Portfolio) and First Eagle Investment (Trades, Portfolio). Olstein’s Olstein Funds purchased 82,000 Zoetis shares after selling out of a preexisting holding in the third quarter. First Eagle mirrored Olstein, starting a new position after selling out in the third quarter. First Eagle bought 2,812,702 shares of the company, making it 0.3% of its portfolio.

Of Zoetis’ other guru holders, two made small reductions: Mario Gabelli (Trades, Portfolio) trimmed 2% of his position and Pioneer Investments (Trades, Portfolio) sold 9% of his shares.

Only one investor, Vanguard Health Care Fund (Trades, Portfolio), has completely closed its position.

Zoetis also reported its first-quarter financial results Friday, the business day before Ackman’s stake reduction. Compared to the first quarter last year, Zoetis’ revenue rose to $1.16 billion from $1.10 billion. Recent acquisitions led the increase in revenue, contributing 4%. Net income was up to $204 million and 41 cents per share from $165 million and 33 cents per share.

Zoetis conducted a number of acquisitions and divestments over the past year. In November, it bought Pharmaq, a Norwegian aquaculture company, and then acquired Abbott Animal Health, a subsidiary of Abbott Laboratories (NYSE:ABT), in February. It also sold a Taiwanese joint venture, two U.S. manufacturing sites and an Indian manufacturing site as part of its “comprehensive operational efficiency program,” which aimed to reduce $300 million in expenses by 2017.

Like one of Ackman’s other activist investments in the pharmaceutical space, Valeant (NYSE:VRX), Zoetis spends relatively little on research and development. It spent no more than 8% of revenue on R&D between 2014 and 2015. Over the same period, Valeant spent no more than 4%. The average for the U.S. pharmaceutical industry in 2014 was 17.9%, according to Statista.

Zoetis generated $440 million in free cash flow in 2015, increased from $446 million in 2014, and has been cash flow positive for six consecutive years. It has a price-earnings ratio of 69.6 and price-sales ratio of 4.98, both close to their respective five-year highs.

Zoetis stock closed Tuesday down 1.96% to $46.57 per share, near an all-time high.

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