Mead Johnson Nutrition Company (MJN) Marked As Today's Roof Leaker Stock

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

Trade-Ideas LLC identified Mead Johnson Nutrition Company ( MJN) as a "roof leaker" (crossing below the 200-day simple moving average on higher than normal relative volume) candidate. In addition to specific proprietary factors, Trade-Ideas identified Mead Johnson Nutrition Company as such a stock due to the following factors:

  • MJN has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $123.5 million.
  • MJN has traded 189,885 shares today.
  • MJN is trading at 6.21 times the normal volume for the stock at this time of day.
  • MJN crossed below its 200-day simple moving average.

'Roof Leaker' stocks are worth watching because trading stocks that begin to experience a breakdown can lead to potentially massive losses. Once psychological and technical resistance barriers like the 200-day moving average are breached on higher than normal relative volume, the stock may then be subject to emotional selling from investors that can continue to drive the stock lower. Regardless of the impetus behind the price and volume action, when a stock moves with weakness and volume it can indicate the start of a new, potentially dangerous, trend.

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More details on MJN:

Mead Johnson Nutrition Company manufactures, distributes, and sells infant formulas, children's nutrition, and other nutritional products. The stock currently has a dividend yield of 1.7%. MJN has a PE ratio of 25.2. Currently there are 5 analysts that rate Mead Johnson Nutrition Company a buy, no analysts rate it a sell, and 7 rate it a hold.

The average volume for Mead Johnson Nutrition Company has been 1.4 million shares per day over the past 30 days. Mead Johnson Nutrition has a market cap of $15.8 billion and is part of the consumer goods sector and food & beverage industry. The stock has a beta of 0.64 and a short float of 1.6% with 1.88 days to cover. Shares are down 7.1% year-to-date as of the close of trading on Monday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Mead Johnson Nutrition Company as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, growth in earnings per share, expanding profit margins, good cash flow from operations and increase in stock price during the past year. We feel these strengths outweigh the fact that the company is trading at a premium valuation based on our review of its current price compared to such things as earnings and book value.

Highlights from the ratings report include:
  • The revenue growth came in higher than the industry average of 0.0%. Since the same quarter one year prior, revenues rose by 13.6%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • MEAD JOHNSON NUTRITION CO has improved earnings per share by 14.5% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, MEAD JOHNSON NUTRITION CO increased its bottom line by earning $2.96 versus $2.47 in the prior year. This year, the market expects an improvement in earnings ($3.37 versus $2.96).
  • The gross profit margin for MEAD JOHNSON NUTRITION CO is rather high; currently it is at 67.03%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 15.43% is above that of the industry average.
  • Net operating cash flow has increased to $192.20 million or 11.16% when compared to the same quarter last year. Despite an increase in cash flow, MEAD JOHNSON NUTRITION CO's average is still marginally south of the industry average growth rate of 11.69%.
  • The net income growth from the same quarter one year ago has exceeded that of the Food Products industry average, but is less than that of the S&P 500. The net income increased by 15.2% when compared to the same quarter one year prior, going from $140.30 million to $161.60 million.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.
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