Mead Johnson Nutrition Co. (MJN)

Mead Johnson is a pediatric nutrition company, competing in the niche sector Consumer > Consumer Products and Services > Food, Beverage and Agriculture > Food > Dairy and Dairy Alternative Products > Dairy Products. The market cap. of Mead Johnson is $14.51 billion as of today (January 8th, 2012).  Since the initial public listed in 2009, the stock price of Mead Johnson has been more than tripled, and this company pays dividend as is shown below:

Mead Johnson’s history went back early to 1905,  In 1967, it was acquired by Bristol-Myers Squibb Company (BMY). In January 1993, Bristol and  Mead Johnson established a joint venture to produce and sell Enfamil and Enfapro infant formulas in Guangzhou, China. So for long years, Mead Johnson was a subsidiary in BMY’s nutrition segment. This company has already accumulated niche sector “know-how” and established solid brand. These traits obviously are the core competitive advantage of Mead Johnson.

However, since Bristol-Myers Squibb is strategically focused on developing anti-cancer drugs, Mead Johnson’s infant formula business become irrelavant. Thus BMY split off Mead Johnson in 2009.

The revenue performance of Mead Johnson after independence is as the following:

While the revenue performance as nutrition segment in BMY in the past years is as the following:

From above, we can conclude the company is in a healthy track of growing up.

What caused the revenue growth of Mead Johnson? Who are the competitors of Mead Johnson that also want to get a cut in the pediatric nutrition market?

The company claimed in its 10K that its growth plan relies on favorable demographic and economic trends in various markets, including: (1) rising incomes in emerging markets, (2) increasing number of working mothers and (3) increasing consumer spending on health care and wellness worldwide.

The geographic revenue information is shown as

On which, revenue from Asia/Latin America has increased 19% from 2009 to 2010 , compared to only 1% from North America/Europe. The Chinese market could be a huge one  for Mead Johnson as the population keep expanding and there are serious food safety issue, particularly  on dairy products in China, which stimulated people in China purchase brand name, foreign dairy products like Mead Johnson’s. On the other hand, the wealthy class in China also is growing, supporting the high demand for Mead Johnson’s products in the near future.

 

Main global competitors for sales of infant formula and children’s nutrition products are Abbott Laboratories, Groupe Danone, Nestlé S.A. and Pfizer Inc. However, the competitors are competing with Mead Johnson by theirs business segments. The parent companies are still focused on pharmaceutical products like drugs. Only Mead Johnson focused itself in this niche sector and invested big chunk of its revenue into Research and Development.

 

I believe Mead Johnson can outperform its competitors in this profitable market.

 

Let’s take a look at the recent quarterly ratios to see whether the company holds on the good momentum.

 

In December, 2011, Mead Johnson Nutrition (MJNtrading volume explodedafter Wal-Mart (WMT) pulled Mead Johnson’ Enfamil powder from over 3,000 stores because there was a 10-day-old baby death from Cronobacter bacteria, which Wal-Mart doubt was linkage between the consumption of Enfamil.

 

The stock price plunged dramatically on that day from $76 to $64 per share. However, aware of the solid quality of Mead Johnson and rare cases of cronobacter infection, it’s very likely the market overreacted this event. Wise investors utilized this good opportunity to buy in MJN with profitable price.

As expected, the price of MHN bounced back shortly afterwards, as is shown below:

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