Mead Johnson Sales Could Inflect Higher, JPMorgan Says

The infant formula maker's EPS topped Street view, while the revenue lagged consensus. Mead Johnson expects full-year earnings in the range of $3.48 to $3.60 per share. Currently, the Street expects earnings of $3.51 a share for the year.

JPMorgan said consensus estimates are likely to rise over time. Specifically, the Street expects a 2018 EBIT margin of 25.7 percent, while management confirmed that the company generally expects 27 percent or so.

"We appreciate that sales trends remain soft; however, we do not require a quick or large reversal in the top line for our thesis to work," analyst Ken Goldman wrote in a note.

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"If sizeable savings programs can power healthy EPS and shareholder value for other companies that consistently disappoint on the top line — think Campbell Soup Company CPB General Mills, Inc. GIS Kellogg Company K, et al — we think they will do the same for MJN," Goldman wrote.

Goldman noted that the company's sales growth likely has hit bottom and will start to inflect higher.

"We doubt that MJN will ever return to the halcyon days of consistent 6 percent plus organic revenue growth. But this level is not required for the shares to perform well," the analyst continued.

Goldman recalled the 29 percent rally of Hain Celestial Group Inc HAIN shares this year as investors sensed a bottom and reversal in revenue growth despite the absolute level of growth remains low-single-digits for now.

"As we look out over the next year-plus, we see Mead's trends benefitting from lapping not only price decline and import issues in China, but also reduced shipments to Venezuela, and share losses in the US," Goldman elaborated.

The analyst expects 1.6 percent sales growth in the second half and 3.9 percent in 2017.

At time of writing, shares of Mead Johnson were down 0.72 percent to $89.24. The analyst has a price target of $105 on the name.

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