IDXX - IDEXX upgraded Elanco downgraded as Goldman shakes up animal health coverage

Goldman Sachs has upgraded IDEXX Laboratories ( IDXX ) and downgraded Elanco Animal Health ( NYSE: ELAN ) as the analysts led by Nathan Rich updated their coverage on the animal healthcare industry in a research note issued on Thursday.

Noting the underperformance of its pet care coverage, the analysts attribute the YTD decline to concerns over the durability of the animal health market in a more challenging consumer environment.

Despite the risks of more volatility in pet spending, “we view the long-term tailwinds for the group as still intact,” the team added, pointing to factors such as product innovation and consumer readiness to spend. In addition, they note that tough comps to the pandemic-era pet boom should start to ease.

Goldman upgrades IDEXX ( IDXX ) to Buy from Neutral, arguing that the company’s long-term revenue model remains attractive while valuation stands below the 2015-19 average. However, the analysts warn that their decision could be premature and cut the price target to $435 from $530 per share as they lower earnings per share to a level that reflects a mild recession.

Meanwhile, downgrading Elanco ( ELAN ) to Sell from Buy, the analysts note growing risks to the Greenfield, Indiana-based company’s earnings outlook.

In addition to OTC parasiticides, concerns on the Chinese market, and competition, the team points to factors impacting new product uptake and regulatory scrutiny over the company’s Seresto product. The ongoing review of the flea collar by the U.S. Environmental Protection Agency could cause Elanco ( ELAN ) shares to underperform peers, the analysts argued.

Meanwhile, Morgan Stanley has removed the rival animal health company Zoetis ( ZTS ) from its Conviction List, noting its recent outperformance since the addition. However, Rich and the team reiterate the Buy rating despite lowering the price target to $202 from $208.

In terms of share price, Zoetis ( ZTS ) has outperformed both IDEXX ( IDXX ) and Elanco ( ELAN ) over the past 12 months, as shown in this graph.

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