ELAN - Elanco downgraded at Morgan Stanley over lingering growth concerns

Morgan Stanley has downgraded Elanco Animal Health ( NYSE: ELAN ) to Equal Weight from Overweight, noting the lingering concerns over its bleak prospects amid macro and company-specific headwinds.

Analysts Erin Wright and Justin X Wang point to ELAN's Q2 financials and argue that the company's decision to cut 2022 guidance and withdraw medium outlook was not unexpected.

"But we are still left with many of the same questions as before the 2Q print," they added, questioning ELAN's long-term profit outlook, drive for innovation, and how company-specific headwinds evolve into 2023.

The team lowers ELAN's 2022 earnings per share estimate to indicate macro headwinds such as COVID lockdowns in China, supply chain challenges, and economic slowdown.

However, more arduous company-specific headwinds such as slower innovation ramp, greater rivalry in the parasiticides market, and potential pricing impact in 2023 prompted them to even slash the EPS estimates for next year. The price target cut to $23 from $37 per share indicates an upside of ~22% from the last close.

Morgan Stanley's downgrade on ELAN comes days after rival intendment banker JPMorgan also cut its recommendation citing better opportunities elsewhere in the animal health space.

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