Morgan Stanley upgraded Zoetis Inc ZTS from Underweight to Equal-Weight and raised its price target from $32 to $48 on Wednesday.
The upgrade came after news that Pershing Square had acquired a stake in the company.
Analysts led by David Risinger expected "Pershing Square to push for cost reductions. And we think new CFO Paul Herendeen can drive greater operating efficiencies following “stand up” cost increases associated with separation from Pfizer in recent years."
"We now project flat SG&A from 2014-2018, and we expect Zoetis to cut R&D spending 10 percent (from $390M in 2014 to $350M in 2017). We now model ZTS operating margin rising from 25.4 percent in 2014 to 34.5 percent in 2020. We raised our 2020E EPS by 18 percent, from $2.65 to $3.13," according to Risinger.
Risinger noted that the firm "could adjust our assumptions once we hear more details about Ackman's plans and Zoetis management's response."
Zoetis recently traded at $43.05, down 1.53 percent, after spiking Tuesday afternoon.
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