Mead Johnson Has a Winning Formula

Marc Courtenay

NEW YORK ( TheStreet) -- The first initial public offering after the financial debacle of 2008 was a pioneer that had been part of Bristol-Myers Squibb .

The inauspicious month of February 2009 saw the market debut of Mead Johnson Nutrition . By the end of 2009, the stock had gained more than 70%, outperforming its parent.

As its thoughtfully organized Web site informs us, "Mead Johnson Nutrition is a global leader in pediatric nutrition with more than 70 products in over 50 countries. Our Enfa family of brands, including Enfamil infant formula, is the world's leading brand franchise in pediatric nutrition. Our mission is to nourish the world's children for the best start in life."

The company also has developed the Mead Johnson Pediatric Nutrition Institute, with three locations, one each in the U.S., Mexico and China.

As the chart illustrates, since the time of its IPO, MJN has offered its shareholders a return that calls to mind the bromide "A merry heart makes good like a medicine." MJN data by YCharts

The mid-2012 major price correction from the low $80s down to the low $60s presented those who had missed MJN's breathtaking ascent to buy in with sweetened upside potential. As of yesterday, MJN's share price had ranged from a 52-week low of $61.27 to the May 28 high of $86.87.

Since then, the stock has dropped more than 8% and closed yesterday at $79.92. Shares of MJN had been trading at a current price-to-earnings ratio of as high as 28 and a forward P/E of over 22. Its five-year expected price-to-earnings-to-growth ratio had soared to an ebullient level of over 2.3.


Yet, as one shareholder said, "There's not a darn thing wrong with this company, and when the share price drops to below $79 I'm going to buy some more shares." This kind of brand loyalty and confidence in the company is not based on blind love or wishful thinking.

Mead Johnson Nutrition has a portfolio of brands representing specialized products parents have trusted for more than a century. The MJN product line claims that it is designed to "...encourage healthy growth, support brain development and address common feeding issues" of children, not shareholders. Although if what it offers is good for infants, it may be good for us big kids, too.

In fact, MJN sells products it calls adult nutrition and milk nutritional enhancers. Not surprisingly, the company also has products for expecting and breast-feeding moms, as well as specialty lines for children with special medical needs and for the management metabolic disorders.

Today, the company sells several metabolic formulas designed for the dietary management of specific conditions, including phenylketonuria, maple syrup urine disease and homocystinuria, among others. It sells its products to mothers, health-care professionals and retailers in 50 countries in North America, Europe, Asia and Latin America.

The company, which was founded in 1905 and is headquartered in Glenview, Ill., also offers a variety of specialized infant formulas that are designed specifically for feeding premature or low-birth-weight infants.

This focused-enough-yet- wide-enough product line has made a significant difference to the company's operating results, financials and the total returns of its shareholders.

The trailing 12-month return on equity is a stellar (are you sitting down) 1,240%! As of last March 31, MJN has an operating margin of over 23% and a profit margin of around 15.5%. Its revenue has grown to nearly $4 billion and it sports a market cap of around $16 billion.

As of March 31, Morgan Stanley owned more than 5% of MJN's outstanding shares of. Another institutional holder of almost 5% was Fidelity Investments , and the Vanguard Group owns another 4.6% of the company's stock.

Frankly, I was somewhat surprised that CEO Peter Jakobsen isn't a substantial owner of shares. As of May 27, outgoing CEO Stephen Golsby exercised 175,000 stock options at $26.58 a share, then he sold 93,478 shares at $86.19 for a 200%-plus profit.


Then I read a company press release from April 30 announcing that Peter K. Jakobsen, 51, had been named as president and CEO by the company's board, following the company's annual meeting the same day in Chicago. Golsby had previously announced his retirement.

"Throughout his career at Mead Johnson, Kasper has displayed a keen understanding of our operations, our customers, our markets, and the issues that drive this industry," said Jim Cornelius, the company's chairman.

"The board looks forward to working with him and his entire leadership team, while at the same time continuing to benefit from the experience and insights of Steve Golsby, who has been reelected as a director."

Jakobsen was designated CEO-elect and appointed to the board a year ago. He became executive vice president and chief operating officer in January 2012, assuming leadership of the company's Global Operating Committee, with responsibility for all regional business activities, as well as global marketing and global supply chain.

Previously akobsen had served as president of the company's business in the Americas, also overseeing the company's global marketing initiatives.

So it's a new chapter for a very successful and very old but newly independent company. Since its IPO, Mead Johnson Nutrition has distinguished itself as remarkably successful. It's a stock I want to keep watching and consider investing in.

At the time of publication the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.