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Société Générale Downgrades Mead Johnson Nutrition to a ‘Hold’

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Price movement

Mead Johnson Nutrition Company (MJN) has a market capitalization of $16.6 billion. It fell by 0.77% to close at $89.20 per share on July 29, 2016.

The stock’s weekly, monthly, and year-to-date (or YTD) price movements were -2.9%, 1.8%, and 14.2%, respectively, on the same day. MJN is trading 1.7% below its 20-day moving average, 2.8% above its 50-day moving average, and 11.4% above its 200-day moving average.

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Related ETFs and peers

The Guggenheim S&P Equal Weight Consumer Staples ETF (RHS) invests 3.1% of its holdings in Mead Johnson Nutrition. The ETF tracks an equal-weighted index of large-cap US consumer staples stocks drawn from the S&P 500. The YTD price movement of RHS was 10.3% on July 29.

The iShares Russell 3000 ETF (IWV) invests 0.08% of its holdings in Mead Johnson Nutrition. The ETF tracks a cap–weighted index that measures the investable US equities market, covering the entire market cap spectrum, including micro-caps.

The market capitalizations of MJN’s competitors are as follows:

  • WhiteWave Foods (WWAV) — $9.8 billion
  • Post Holdings (POST) — $5.5 billion
  • Dean Foods (DF) — $1.7 billion

Mead Johnson Nutrition’s rating

Société Générale has downgraded Mead Johnson Nutrition’s rating to a “hold” from a “buy.” It also set the price target at $95.0 from $100.0 per share.

On July 26, 2016, JPMorgan Chase upgraded Mead Johnson Nutrition to an “overweight” from a “neutral” rating and set the stock’s price target at $105.0 per share.

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Performance of Mead Johnson in 2Q16

Mead Johnson Nutrition reported 2Q16 net sales of $941.5 million, a fall of 8.8% compared to net sales of $1.0 billion in 2Q15. Sales from its Asia, Latin America, and North America and Europe segments fell by 11.1%, 16.1%, and 0.62%, respectively, in 2Q16 compared to 2Q15.

The company’s gross profit margin and EBIT (earnings before interest and tax) fell by 1.3% and 6.5%, respectively, in 2Q16 compared to the prior year’s period.

Its net income and EPS (earnings per share) fell to $155.1 million and $0.83, respectively, in 2Q16 compared to $162.9 million and $0.80, respectively, in 2Q15. It reported non-GAAP (generally accepted accounting principles) EPS of $0.88 in 2Q16, a rise of 15.8% compared to 2Q15.

MJN’s cash and cash equivalents rose by 0.86%, and its inventories fell by 3.9% in 2Q16 compared to 4Q15. Its current ratio rose to 2.3x in 2Q16 compared to 2.1x in 4Q15.

The company reported, “Additional savings opportunities of $60 million have been identified within Fuel for Growth, resulting in expected total cost savings of ~$180 million by 2018. The program is ahead of the schedule and is now expected to deliver ~$75 to $80 million of savings in 2016.”

Projection

The company has made the following projections for 2016:

  • sales in the range of 0%–2% lower than in 2015 on a constant dollar basis or 5%–7% lower on a reported basis. This guidance reflects increased customs at border points in China, a rise in trade investments in China, and a fall in US market share in 1H16.
  • GAAP EPS in the range of $2.91–$3.03
  • non-GAAP EPS in the range of $3.48–$3.60

Next we’ll discuss Graphic Packaging Holding Company (GPK).

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