In a report published Friday, BMO Capital analyst Alex Arfaei downgraded the rating on Zoetis Inc ZTS from Outperform to Market Perform, while raising the price target from $51 to $57, following the almost 29 percent increase in the share price year-to-date.
The analyst believes that the company could be acquired for about $60 per share, representing about 8 percent upside to the stock's closing price on Thursday. However, in the absence of the takeout premium, the share price could fall as much as 15-20 percent.
"We believe it would be very difficult for ZTS management to argue that they could generate similar near-term value for ZTS shareholders, especially after their recently announced operational efficiency initiative. This should support the prospects for a potential deal, in our view," Arfaei stated.
The analyst believes that there is a high probability of Zoetis being acquired. The company has a productive R&D division, with new drugs like Apoquel, which are promising. "Therefore, ZTS, as the best-in-class animal health company, unquestionably deserves a premium, in our view," Arfaei added.
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