Jefferies Raises Zoetis Price Target, Says Consolidation Continues To Look Likely

Jeffrey Holford of Jefferies speculates that consolidation "continues to look likely" for Zoetis Inc ZTS in 2015.

According to Holford, Zoetis' 2015 revenue guidance of $4.85 billion to $4.95 billion and earnings per share of $1.61 to $1.68 were both below expectations but still leaves room for upside, specifically an earnings surprise. The culprit for the lower-than-expected guidance is higher-than-expected SG&A costs, continuing an ongoing theme of investor frustration.

However, the analyst is more focused on his belief that consolidation continues to look likely for 2015.

"We were surprised to hear management volunteer that if Zoetis were to invert into or be acquired by a foreign company, it would likely reduce its tax rate by approximately 600 basis points to 23 percent," Holford wrote. "In our eyes this only ‘pours fuel on the fire' regarding the market's expectations that Zoetis could become an acquisition target."

Holford suggests that a Bayer acquisition of Zoetis would be an "important" strategic play for the German-based multi-national.

Shares were reiterated with a Buy rating with a price target raised to $53 from a previous $46.