BofA Downgrades Veterinary Medicine Maker Zoetis On Valuation

Zoetis Inc’s (NYSE: ZTS) stock has appreciated significantly year-to-date on a continued “safety haven” trade and upside to 2020 results on the basis of the upcoming launch of Simparica Trio, according to Bank of America Merrill Lynch. 

The stock appears fairly valued, according to the sell-side firm. 

The Analyst

Michael Ryskin downgraded Zoetis from Buy to Neutral and raised the price target from $111 to $120.

The Thesis

Shares of Zoetis have gained 32% since the beginning of 2019 versus a 17% appreciation for the S&P 500, and the stock jumped 13% in June, Ryskin said in a Monday downgrade note. (See his track record here.)

The stock's recent performance has been driven by safe haven buying by investors, as the company offers a balance of growth and defensive characteristics as well as insulation from overhangs in other health care subsectors, the analyst said. 

The stock has also been supported by the upcoming launch of the parasiticide Simparica Trio, since a successful launch could be “the next major growth driver” for Zoetis, Ryskin said.

The company could gain significant share in the parasiticide market in the first year of the launch, he said. 

While BofA raised its 2020 EPS estimate for Zoetis from $3.90 to $4 to reflect the upcoming launch, Ryskin said there is little upside to expectations going forward, and stock multiples are already at record highs.

Price Action

Zoetis shares were up 0.17% at $113.56 at the time of publication Monday. 

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