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Zoetis Inc’s, the world’s largest producer of medicine and vaccinations for pets and livestock, price target was raised to $167 from $125, largely driven by higher multiple assumptions, according to Morgan Stanley equity analyst David Risinger, who also said better-than-anticipated performance in the face of COVID-19 pressures has caused the increase for this year’s and 2021’s EPS to 9% and 6%, respectively.
Early this month, the animal health company said its revenue came in at $1.5 billion for the second quarter of 2020, which is flat compared with the same quarter a year earlier. Net income for the second quarter of 2020 was $377 million, or $0.79 per diluted share, an increase of 2% and 3%, respectively.
Revenue in the U.S. segment was $823 million, an increase of 6% compared with the second quarter of 2019. However, Revenue in the international segment was $708 million, a decrease of 5% on a reported basis and an increase of 3% operationally compared with the second quarter of 2019.
Zoetis forecasts its full-year 2020 revenue between $6.300 billion and $6.475 billion, reported diluted EPS between $3.14 and $3.32 and adjusted diluted EPS between $3.52 and $3.68.
“We increased our revenue in 2020e by 4% (from $6.2 billion to $6.5 billion) and 4% in 2021e (from $6.7 billion to $7.0 billion). We increase our EPS in 2020e by 9% (from $3.35 to $3.66) and 6% in 2021e (from $3.94 to $4.18). In addition, we significantly raise our price target from $125 (32x 2021e EPS of $3.94) to $167 (40x 2021e EPS of $4.18). We are increasing our multiple targets because the market is assigning higher multiples to “best of breed” companies, and Zoetis is the #1 company in the Animal Health industry,” said David Risinger, equity analyst at Morgan Stanley.
“Since we had assigned a PT of $125 on April 2, the S&P 500 has traded up +35% and NASDAQ has traded up +49%. Zoetis’ stock is trading close to all-time high absolute P/E and relative P/E multiples. ZTS multiple has expanded as it has outgrown peers, delivered earnings upside, and benefited from the premium the stock market is assigning to best-in-class companies,” Risinger added.
Morgan Stanley target price under a bull-case scenario is $203 and $137 under the worst-case scenario. Several other equity analysts have also updated their stock outlook. The brokerage currently has an “equal weight” rating on the stock. Credit Suisse Group reiterated a “buy” rating and set a $147.00 target price.