Mead Johnson (MJN) Massachusetts Contract Loss May Lead to Much Biggter Texas Contract Win - BMO
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BMO Capital analyst Amit Sharma weighed in on Mead Johnson Nutrition (NYSE: MJN) after the company lost the WIC infant formula contract in Massachusetts to Abbott, effective October 1.
Sharma notes the loss of Massachusetts, which accounts for 3% of Mead's US volumes, creates sales/margin pressure into 2017. However, they wonder whether Mead's decision to concede Massachusetts (and several other smaller WIC contracts over the past 12 months) is part of its strategy to bid aggressively for the much larger WIC contract in Texas (7-8x bigger than Massachusetts).
The firm estimates that the loss of this contract could have a $0.06-$0.08 impact on Mead's EPS. FY 2016 EPS was trimmed from $3.49 to $3.47 and FY 2017 EPS from $3.83 to $3.77.
The firm maintained an Outperform rating and trimmed its price target to $96.00 (from $97.00)
Shares of Mead Johnson Nutrition closed at $79.11 yesterday.
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