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Investing.com -- Stifel downgraded Zoetis (NYSE:ZTS) to Hold from Buy, warning that revenue growth could fall short of Wall Street expectations in the next two years as competition intensifies across key product categories.

The brokerage cited a slowdown in growth for the animal health company’s flagship dermatology and parasiticide segments, which together account for more than 40% of annual revenue and over half of operating income.

Stifel now expects annual revenue to grow 5.8% in 2026 and 4.8% in 2027, below current consensus forecasts of roughly 6%.

Veterinarian surveys indicated rising interest in rival offerings, including Merck’s pending atopic dermatitis treatment and Elanco’s Zenrelia and Credelio Quattro, all of which may erode Zoetis’ market share in areas where it has historically dominated.

The firm’s analysis suggested that Merck’s product could claim up to 37% of new prescriptions in the JAK inhibitor category by 2026, compared with a projected 50% for Zoetis’ Apoquel, down from a prior 100% share.

Price sensitivity was also a factor, with most veterinarians open to switching to a lower-cost alternative, according to Stifel

Stifel also flagged signs that Zoetis’ arthritis drug Librela is plateauing in the U.S., with limited new adoption and stagnation in its use as a first-line treatment.

While longer-term opportunities in oncology and kidney disease exist, the brokerage expects these markets to develop more slowly and with lower near-term impact.

The firm said it no longer expects Zoetis to expand its valuation multiple, given the pressure on key products and reduced visibility into new growth drivers.

The stock currently trades at a premium to the healthcare sector, but Stifel believes that gap is likely to remain below historical averages.

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