UPDATE: UBS Starts Mead Johnson Nutrition (MJN) at Neutral
- S&P, Nasdaq hit highs on gains in health, tech stocks
- Coca Cola (KO) Announces James Quincey to Succeed Muhtar Kent as CEO; Kent to Continue as Chairman
- Broadcom Ltd. (AVGO) Tops Q4 EPS by 11c
- Sibanye Gold (SBGL) to Acquire Stillwater Mining Company (SWC) in $2.2B Deal
- Exclusive: ECB rejects Monte Paschi's request for more time to raise cash - source
Get the Pulse of the Market with StreetInsider.com's Pulse Picks. Get your Free Trial here.
(Updated - August 24, 2016 9:11 AM EDT)
UBS initiated coverage on Mead Johnson Nutrition (NYSE: MJN) with a Neutral rating and a price target of $90. Analyst Steven Strycula noted shifting China dynamics and he believes regulations create near-term risk.
"Mead is the last US pure play infant milk formula (IMF) manufacturer, making MJN a unique asset within an attractive growth category ($33B in sales) with structural advantages: rising per capita consumption, growing middle class/ female workforce, and attractive economics (>27% EBITDA margins). While Mead operates leading #1-2 share across 8 top mkts, we are Neutral near-term given MJN's exposure to China/HK (~35% of profits). China's $12B IMF market is now exiting an era of outsized growth (2010-15) when a series of food safety scandals involving local brands sparked a demand surge for imported formula. This demand shift to import brands has attracted gov't attention and new laws aimed at increasing safety & legitimizing trade channels," noted Strycula.
The analyst added, "New China FDA measures will close tax advantaged loopholes for the unregulated grey market channel and use registration requirements to reduce the number of brands sold in China by 75% (to 500 from 2000). Combined these regulations will free-up $1.5B of revenue by 2018 for multi-national brands like Mead to take. Every 10% share MJN captures of China's $1.5B grey market adds $150m in sales and $0.21 in EPS thru 2018. Mead's second sales catalyst is China's fast-growing $2B super premium import formula mkt. In April, MJN launched Enfinitas, its first super premium brand in China, and our checks point to encouraging sell-through. While we believe Enfinitas could add $100-200m in sales by 2018 (w/10% share net of cannibalization), we see longer tailed IMF price risk in China as reform could eventually shift demand back to local brands."
Shares of Mead Johnson Nutrition closed at $84.85 yesterday.
Serious News for Serious Traders! Try StreetInsider.com Premium Free!
You May Also Be Interested In
- UBS Cuts Price Target on Restoration Hardware (RH) to $34 Following 3Q
- FBR Capital Raises Price Target on Methode Electronics (MEI) Following Better Than Expected 2Q
- Argus Downgrades Abercrombie & Fitch (ANF) to Sell
Create E-mail Alert Related CategoriesAnalyst Comments, New Coverage
Sign up for StreetInsider Free!
Receive full access to all new and archived articles, unlimited portfolio tracking, e-mail alerts, custom newswires and RSS feeds - and more!