Mead Johnson Nutrition Downgraded At Credit Suisse On 'Long Road' To Recovery

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  • Mead Johnson Nutrition CO MJN shares have declined 20.95 percent year to date, hitting a low of $69.64 on September 29.
  • Credit Suisse’s Robert Moskow has downgraded the rating on the company from Outperform to Neutral, with a price target of $86.
  • Moskow believes that the recent rally in the share price has made the risk-reward profile less attractive, while expecting a “long road to recovery” for the company.”

According to the Credit Suisse report, “With management calling 2016 a "transition year" and 2017 a year for "building momentum," we expect a long wait before the company can return to a pattern of double-digit EPS growth.”

Analyst Robert Moskow expressed concern regarding China becoming “an opaque and moving target,” given the competitive actions, unpredictable regulatory actions and the channel transitioning to e-commerce.

“As a result, it is very difficult to determine when (or if) the company's accelerated investment will begin to bear fruit,” Moskow stated.

Moskow also expressed concern regarding the lack of opportunities for SG&A opportunities, while mentioning that Mead Johnson had “admitted that it allowed its overhead costs to escalate too high.”

Management also explained that its hybrid consumer/medical products model intrinsically needs higher spending. Therefore, the company’s restructuring initiative focuses only on $400 million of the cost structure.

However, Moskow also said that “management demonstrated a greater sense of urgency to create shareholder value with a $1B accelerated share repurchase program and openness toward expanding operating margins beyond 24 percent.”

The company has also announced its intention to launch a “super high premium” product in China to narrow its portfolio gap.

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Posted In: Analyst ColorDowngradesAnalyst RatingsCredit SuisseRobert Moskow
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