Zoetis Investors May Need Patience To See Bull Thesis Play Out

After a more than 15-percent gain in Zoetis Inc ZTS since the start of 2017, analysts at Deutsche Bank see little incremental upside in the near-term.

Gregg Gilbert downgraded Zoetis' stock from Buy to Hold with an unchanged $65 price target as it has handily outperformed the S&P index and most of the pharmaceutical space.

Zoetis should still be considered as a core long-term position, but investors could find a "more attractive" entry point for new money elsewhere, the analyst said. A $65 price target assumes mid-single digit revenue growth over the next few years along with operating margin expansion and higher earnings growth.

In the meantime, there's little reason for investors to view rival Eli Lilly and Co LLY's earnings report of being a concern, Gilbert added. Specifically, Eli Lilly's animal health division was lower in its recent quarter and highlighted by a 14 percent decline in food animal revenue.

However, Zoetis' portfolio isn't an apples-for-apples comparison to Eli Lilly's as the relationship between the two companies has "not been very consistent."

Finally, Zoetis is expected to at the very least meet consensus estimates in its second-quarter earnings report given its strong momentum along with a higher growth and margin profile versus its peers.

"We believe the stock better reflects the strong and durable revenue and earnings growth potential in the attractive Animal Health industry," the analyst emphasized.

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