Pfizer Will Reward Shareholders With Zoetis Spin-Off

| About: Pfizer Inc. (PFE)

At the beginning of 2013, I selected pharmaceutical giant Pfizer (NYSE:PFE) as one of my top ten stock picks for the year. Of the three reasons I gave for investing in the drug company, the spin-off of animal health unit Zoetis (NYSE:ZTS) was the biggest. Now, Pfizer has set terms and is in the process of completing this beneficial transaction.

Pfizer sold off 20% of its ownership in Zoetis in a 2013 IPO. I recommended buying shares of the world's largest pet and farm animal medicine company. Shares are up over 20% since the IPO and continue to be recommended by analysts.

Pfizer shareholders will now have the option to accumulate shares of Zoetis at a discount. Pfizer is attempting to sell its remaining controlling stake (80.2%) of Zoetis through a voluntary stock exchange with current shareholders. Current shareholders of Pfizer will be able to buy Zoetis shares at a 7% discount to the market price of shares. The actual amount will be determined based on the average price of both stocks prior to the June 19th expiration.

Pfizer is hoping to exchange at least 160.4 million shares of Zoetis to shareholders. If the company can't unload its entire 401 million share stake, it will attempt to again. Pfizer has already said it will consider an additional voluntary stock exchange or a special dividend to get rid of its remaining stake in the future.

At the beginning of the year, I gave three key reasons to buy Pfizer shares.

· Spin-off of Zoetis

· Dividend Yield/Share Buybacks

· Drug approval of Eliquis

Shares of Pfizer are up 12% on the year and have more room to run on the year. Zoetis, without the major blockbuster patent losses, has the better growth future. Both stocks offer good investment opportunities. However, with a 7% discount to current prices, Pfizer investors should consider exchanging a portion of their stake for new shares in Zoetis.

In the first quarter, Zoetis saw revenue growth of 4% to $1.09 billion. This number won't amaze many people, but Zoetis did see growth in all four of its covered areas and continues to increase its international presence, despite global weaknesses in several regions. Sales in the United States grew 7% to $454 million. In the Europe/Africa/Middle East, sales grew 4% to $290 million. Canada/Latin America saw sales increase 4% to $171 million. In the Asia/Pacific region, sales increased 2% to $175 million.

China and emerging markets continue to be huge growth areas. Zoetis had a treatment approved in China recently and also signed a deal with a large farm in Argentina. In a way, Zoetis is a play on the world food boom, by keeping livestock and other sources of food healthy for farmers to increase yield.

Net income in the first quarter increased 18% to $179 million. Earnings per share grew 20% to $0.36. For the full year, Zoetis sees earnings per share hitting a range of $1.36 to $1.42. Revenue is expected to hit $4.425 to $4.525 billion. Analysts on Yahoo see earnings coming in at $1.40 and revenue hitting $4.52 billion.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in PFE, ZTS over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.