Estimates have been rising for Mead Johnson Nutrition Company (MJN) after the company delivered its 6th consecutive positive earnings surprise. It is a Zacks #2 Rank (Buy) stock.

Based on consensus estimates, analysts project strong double-digit earnings growth over the next couple years as the company continues to grow in the emerging markets.

On top of this growth, it pays a dividend that yields a solid 1.5%.

Company Description

Mead Johnson manufactures and distributes pediatric nutrition products primarily under its "Enfa" family of brands. The Enfa brand, including Enfamil® infant formula, is a global brand franchise in pediatric nutrition.

The company was founded in 1905 and is headquartered in Glenview, Illinois. It was spun-off from Bristol-Meyers Squibb (BMY) in 2009.

First Quarter Results

Mead Johnson Nutrition delivered strong first quarter results on April 26. Adjusted earnings per share came in at 82 cents, beating the Zacks Consensus Estimate of 78 cents. It was an 8% increase over the same quarter last year.

Net sales rose 9% to $986.6 million, ahead of the consensus of $980.0 million. This was driven by a 5% increase in volume and a 4% increase in prices. Growth was particularly strong in the Asia/Latin America segment, which offset weakness in the North America/Europe segment.

The gross margin did decline 230 basis points year-over-year. But operating income was up 12% over the same period to $222.6 million.

Guidance Raised

Following strong Q1 results, management raised its guidance for the remainder of the year. The company now expects to earn between $3.04 and $3.14 per share, up from previous guidance of $3.00-$3.10. The company also stated that it anticipates sales to be in the range of 9-11%, due in part to emerging market growth.

This prompted analysts to revise their estimates higher, sending the stock to a Zacks #2 Rank (Buy).

The Zacks Consensus Estimate for 2012 is now $3.15, slightly above guidance, and representing 13% growth over 2011 EPS. The Zacks Consensus Estimate for 2013 is currently $3.64, corresponding with 16% growth.


In addition to strong earnings growth, the company pays a dividend that yields a solid 1.5%. The company raised its quarterly dividend by 15% earlier in the year, marking its 3rd dividend hike since 2010.


Valuation doesn't look cheap with shares trading at 23x 12-month forward earnings, a premium to the industry median of 13x. But considering the company's above-average growth rates, this is still reasonable.

The Bottom Line

With rising estimates, strong growth projections, and a solid 1.5% yield, Mead Johnson offers investors a lot to like.

Todd Bunton is the Growth & Income Stock Strategist for and Editor of the Income Plus Investor service.


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