Danone's Food May Be Healthy but Its Stock Is Not

NEW YORK ( TheStreet) -- The French food company Danone SA (OTC: DANOY) has long been known as the maker of yogurt, including the Activia, Oikos and Ser brands.

But this company also has a healthy business in flavored and vitamin-enriched water under its Evian and Aqua brands, among many others, and a medical nutrition division. It is in this area where several competitors, including Nestle (OTC: NSRGY) and the American Mead Johnson Nutrition ( MJN) are trying to eat Danone's lunch.

Danone's American depositary receipts are not so healthy. They have an average three-month daily volume of over 1,042,000, although on Tuesday volume was less than 136,000 shares. They closed down 1.2% to $13.77 Tuesday and are down 5.2% for the year to date.

Shares of Danone have corrected almost 15% from its 52-week high of $16.12 to Tuesday's closing price, and are selling at less than 17 times forward (1year) earnings. This is a big company with a market cap of over $40 billion, but if its shares keep tumbling it will soon challenge the 52-week low of $13.29.

What's the problem with this company's stock? After all, it is one of the first food companies to manufacture and market a yogurt with pro-biotic bacteria that could be categorized as a "medical food."

And its Medical Nutrition division, which markets primarily under the Nutricia brand, provides specialized food for people receiving medical treatment, babies afflicted with certain illnesses and the frail elderly. Its products include liquid oral nutritional supplements, hypoallergenic products and oral and feeding tube food products for the dietary treatment of infants and children, among many others.

However, the U.S. Food and Drug Administration, on its Web site, classifies medical food in quite a different way.

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