Mead Johnson Nutrition Co Valuation – November 2015 Update $MJN

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – November 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Mead Johnson Nutrition Co (MJN) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Mead Johnson Nutrition Company (Mead Johnson) is a global pediatric nutrition company. The Company manufactures, distributes and sells infant formulas, children’s nutrition and other nutritional products. Its product portfolio includes routine and specialty infant formulas, children’s milks and milk modifiers, dietary supplements for pregnant and breastfeeding mothers, pediatric vitamins, and products for pediatric metabolic disorders. The Company operates through three segments: Asia, Latin America and North America/Europe. The Company’s Enfa family of brands, including Enfamil infant formula, is a brand franchise in pediatric nutrition. Its product portfolio addresses a range of nutritional needs for infants, children and expectant and nursing mothers. The Company markets its portfolio of more than 70 products to mothers, healthcare professionals and retailers in more than 50 countries in Asia, North America, Latin America and Europe.


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Downloadable PDF version of this valuation:

ModernGraham Valuation of MJN – November 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $16,314,657,840 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.04 Pass
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 111.23% Pass
6. Moderate PEmg Ratio PEmg < 20 25.43 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 47.58 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.04 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.48 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

MJN value Chart November 2015

EPSmg $3.26
MG Growth Estimate 6.42%
MG Value $69.59
Opinion Overvalued
MG Value based on 3% Growth $47.28
MG Value based on 0% Growth $27.72
Market Implied Growth Rate 8.46%
Current Price $82.91
% of Intrinsic Value 119.15%

Mead Johnson Nutrition Co qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the short operating history, along with the high PEmg and PB ratios.  The Enterprising Investor is only initially concerned by the level of debt relative to the net current assets.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $2.28 in 2011 to an estimated $3.26 for 2015.  This level of demonstrated earnings growth does not support the market’s implied estimate of 8.46% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Mead Johnson Nutrition Co (MJN)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

MJN Charts November 2015

Net Current Asset Value (NCAV) -$4.91
Graham Number $11.30
PEmg 25.43
Current Ratio 2.04
PB Ratio 47.58
Dividend Yield 1.95%
Number of Consecutive Years of Dividend Growth 7



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Most Recent Balance Sheet Figures

Balance Sheet Information Sep15
Total Current Assets $2,435,200,000
Total Current Liabilities $1,193,600,000
Long-Term Debt $1,839,300,000
Total Assets $3,777,900,000
Intangible Assets $212,000,000
Total Liabilities $3,426,400,000
Shares Outstanding (Diluted Average) 201,700,000

Earnings Per Share History

Next Fiscal Year Estimate $3.26
Dec14 $3.54
Dec13 $3.36
Dec12 $2.95
Dec11 $2.47
Dec10 $2.20
Dec09 $1.99
Dec08 $2.32
Dec07 $2.49

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $3.26
Dec14 $3.14
Dec13 $2.83
Dec12 $2.50
Dec11 $2.28
Dec10 $2.06
Dec09 $1.78
Dec08 $1.44
Dec07 $0.83

Recommended Reading:

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Mead Johnson Nutrition Company Quarterly Valuation – May 2015 $MJN

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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