REAL-TIME GLOBAL RESEARCH
Position selectively amidst broader market uncertainty: Initiate at Buy on ELAN and IDXX, Neutral on ZTS
Key takeaways
- Position selectively amidst broader market uncertainty: Initiate at Buy
- We launch coverage of animal health with a selective view, as investors increasingly question the durability of the industry’s historical mid-to-high-single-digit growth algorithm amid heightened competition in key pet-h
- These concerns have driven a sharp sector de-rating, with the group down ~30% on a market-cap-weighted basis YTD, and, in our view, provide opportunities to selectively position in growth stories that are less dependent
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Research evidence excerpt
Position selectively amidst broader market uncertainty: Initiate at Buy
on ELAN and IDXX, Neutral on ZTS
We launch coverage of animal health with a selective view, as investors increasingly question the durability of the industry’s historical mid-to-high-single-digit growth algorithm amid heightened competition in key pet-health categories and continued weakness in US veterinary clinic traffic (the incremental driver for vet-related stocks).
These concerns have driven a sharp sector de-rating, with the group down ~30% on a market-cap-weighted basis YTD, and, in our view, provide opportunities to selectively position in growth stories that are less dependent on a broad recovery in industry demand:
IDXX (Buy): High-quality compounder with proven execution track record, multiple company-specific growth drivers, and an early innovation cycle that we believe can sustain double-digit EPS growth through instrument placements, increasing diagnostics utilization, software adoption, international expansion, margin expansion, and share repurchases.
ELAN (Buy): Innovation-driven turnaround story where we believe the market under-appreciates the runway for growth from recent product cycles, providing a path for sustained market-share gains, favorable mix shift, margin expansion, deleveraging, and accelerating EPS growth.
Matt Dellatorre, Ph.D.
Elizabeth Webster, Ph.D.
Mark Aleynick, Ph.D.
Goldman Sachs & Co. LLC
ZTS (Neutral): While we are constructive on the long-term outlook given its industry-leading position and strong record of innovation, we see more balanced near-term risk/reward as the company works to stabilize key franchises amid heightened competition and demonstrate progress on its next wave of innovation.
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