Zoetis Inc (NYSE: ZTS) has been meaningfully outperforming specialty pharma peers year-to-date.

Citi’s Liav Abraham downgraded the company from Buy to Neutral, while raising the price target from $46 to $50.

Upside Unlikely

While maintaining a constructive stance on Zoetis’ fundamentals and its positioning as the leading global animal healthcare company, Abraham stated, “We struggle to see meaningful upside from current valuation levels over the near to medium term in the absence of either material M&A or meaningful earnings upside.”

The analyst mentioned that the 2016–2018 sales and earnings estimates were mostly in line with the consensus, with annual underlying sales growth estimated at 7–8 percent, higher than the industry average.

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“Apoquel and Simparica are expected to contribute to above-average companion animal sales growth going forward, in our view,” Abraham said.

Potential For M&A

The analyst does not expect Zoetis to undertake any major M&A activity in the foreseeable future, although incremental inorganic growth is expected to focus on small-to-medium size transaction.

Abraham also does not expect the company “to engage in material acquisitions due to anti-trust challenges on this front.”