Zoetis (ZTS) Announces 3Q Beat and Raise Along with PHARMAQ Deal; Guggenheim Reiterates Buy
Guggenheim reiterated a Buy rating and $60.00 price target on Zoetis Inc. (NYSE: ZTS) following the company's 3Q15 earnings results. ZTS reported 3Q15 EPS of $0.50, $0.10 higher than consensus, and then increased its '15 and '16 EPS guidance to $1.70-$1.74 from $1.63-$1.68 and $1.84-$1.94 from $1.81-$1.93, respectively. The release also included the announcement of a deal with PHARMAQ. Management stated that PHARMAQ strengthens ZTS's livestock business with vaccines and drugs for farmed fish, the fastest growing segment of the industry.
Analyst Louise Chen commented, "We remain positive on ZTS post the 3Q15 beat-and-raise quarter, which also included the announcement of the PHARMAQ deal (fish farming). In our view, strong execution this quarter demonstrates that ZTS is a growth stock, and we believe the company's valuation does not fully reflect this. We see a path to $4.80 of EPS in '21 (consensus at $3.12 for '20). Upward earnings revisions could come from margin expansion, M&A, and new launches. Post the headwinds from rationalizing slower growth and less profitable SKUs, we estimate ZTS can grow sales at least 5%-6% and SG&A 2%-3%, which would support double-digit EPS growth for the foreseeable future. Finally, scrutiny of high-priced human drugs has impacted ZTS, but the company sells animal health (AH) drugs. Therefore, we believe the risk/reward for ZTS shares is compelling here and we continue to recommend buying the stock, especially on recent weakness (ZTS down 2% since 9/18 vs. S&P500 up 7.5%)."
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Shares of Zoetis Inc. closed at $44.24 yesterday.