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Looking For A Better Entry Point, BMO Downgrades Zoetis Shares

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June 13, 2017 2:39 pm
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Citing upcoming risks and not enough upside, BMO Capital Markets analyst Alex Arfaei has downgraded Zoetis Inc (NYSE:ZTS) to Market Perform.

“Although we expect a good 2Q17, we doubt it will meaningfully change the company's long-term growth prospects. With consensus estimates rising to meet ours, ZTS seems like a crowded long. While we recognize potential upside drivers, at these levels, we believe they are balanced by downside risk,” said Arfaei.

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3 Key Takeaways

  1. In 2016, BMO viewed Zoetis as a company with a very durable and resilient business. However, Arfaei no longer sees this as a case and believes BMO’s 2016 theses has materialized.
  2. While BMO still expects Zoetis to have a solid Q2 report, Arfaei does not believe it will have a large enough impact on its long-term theses.
  3. Arfaei sees a very balanced risk/reward opportunity with Zoetis.

Potential Rewards: Better-than-expected U.S. livestock recovery, growth in emerging markets, and U.S. tax reform.

Potential Risks: Slower-than-expected U.S. livestock recovery, Zoetis could struggle entering into emerging markets, the emergence of antibiotic-resistant bacteria.

Year to date, Zoetis is up 16 percent.

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