Earnings Revisions Improve visibility on Zoetis (ZTS); Guggenheim Raises Price Target to $60

Guggenheim reiterates a Buy rating on Zoetis Inc. (NYSE: ZTS), and raised the price target to $60.00 (from $55.00). Analyst Louise Chen says that the increase is being driven by multiple expansions because earnings visibility is improving.

Chen commented, "One of the most common pushbacks we get on owning or buying ZTS stock is valuation, but we think ZTS shares could trade higher from current levels. We expect this will be driven by upwards earnings revisions in '17+. We see a path to $4.80 of EPS in '21, and if we are right, the stock would be worth a lot more than $50 per share. We follow a trail of crumbs that we believe lead to a more efficient earnings platform in '17+. The clues are as follows, in our view: 1) Additions of Paul Herendeen (CFO), Paul Bisaro (Board), and Pershing Square (Board); 2) The announcement (3/4/15) that management will now also be compensated based on stock performance; 3) A $300MM cost-cutting plan, which management is incentivized to beat because executives will not be compensated for their efforts here unless cost cuts exceed $300MM (cannot cut costs essential for growth functions); and 4) Several disclosed drug launches in '15 and '16, which we think could exceed expectations, including: Apoquel, Sarolaner, IL-31, and others. Therefore, we are raising our price target from $55 to $60. The increase is driven by multiple expansion because earnings visibility is improving. We arrive at our new price target by using a blend of P/E, DCF, and Sum of the Parts."

For an analyst ratings summary and ratings history on Zoetis Inc. click here. For more ratings news on Zoetis Inc. click here.

Shares of Zoetis Inc. closed at $49.87 yesterday.

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