Mead Johnson Nutritional Co (MJN) The Henry Fund April 19, 2016

The Henry Fund
Henry B. Tippie School of Management
Josh Vander Plaats [[email protected]]
Mead Johnson Nutritional Co (MJN)
Stock Rating
Consumer Staples – Packaged Food Products
Investment Thesis
We rate Mead Johnson Nutritional a BUY due to the forecasted 24% upside
compared to current price levels and relative small downside. The company is
a market leader with a strong brand in a growing industry with strong
operating margins that will provide solid long term value to shareholders.
Drivers of Thesis
 Strong brand equity: provides pricing power and creates substantial
barrier to entry.
 Exposure to growth markets in defensive industry: MJN offers exposure
(>30% of sales to China alone) to emerging market growth with little
downside risk due to a strong underlying business and little demand
elasticity.
 Increasing Efficiencies: Management decisions have increased efficiencies
and are a positive sign for future margin growth.
 Positive Demographic Trends: Birth rates in the US are trending upward
and incomes in emerging markets are rising. These signs point to growth
opportunities for MJN.
Risks to Thesis
 New Market Concerns: Continued disappointing news out of emerging
markets would hamper revenue growth.
 Margin Turnaround risk: Downward pressures on prices and margins due
to competitive markets. If competitive pricing eats into margins, will hurt
earnings.
 Strengthening Dollar: Continued currency headwind will hurt future
earnings.
Year
EPS
growth
2013
$3.37
13.85%
2014
$3.55
5.34%
2015
$3.28
-7.61%
2016E
$3.49
6.54%
2017E
$3.73
6.61%
2018E
$3.83
2.86%
12 Month Performance – Total Returns
Source: FactSet
MJN
20%
S&P 500
0%
-20%
-40%
-60%
A
M
J
J
A
S
O
N
Target Price
Henry Fund DCF
Henry Fund DDM
Relative Multiple
Price Data
Current Price
52wk Range
Consensus Target
Key Statistics
Market Cap (B)
Shares Outstanding (M)
Institutional Ownership
Two Year Beta
Dividend Yield
Est. 5yr Growth
Price/Earnings (TTM)
Price/Earnings (FY1)
Price/Sales (TTM)
D
J
F
M
BUY
$105
$104.43
$94.72
$89.95
$84.31
$67.64 – 103.11
$80.31
$15.72
186.5
101%
0.88
2.35%
5.72%
22.8
21.6
1.84
Profitability
Operating Margin
Profit Margin
Return on Assets (TTM)
Return on Equity (TTM)
Source: FactSet
MJN
25
20
15
10
Earnings Estimates
April 19, 2016
21.3
18.2
20.6
5
0
P/E
ABT
19.2
23.0%
16.5%
16.84%
n/a
Danone
14.5 14.1
6.4 5.4
ROA (5 Yr Avg)
11.1
EV/EBITDA
Company Description
Mead Johnson Nutritional Company produces
products for early life stages through infant
formula, supplemental formula, and other
nutritional supplements. They also product
pre/post pre-natal supplements and are currently
expanding to provide nutrition based products for
toddlers. The company gives investors exposure
to the growth of emerging markets while still
offering a strong profitable staple in the western
markets.
Important disclosures appear on the last page of this report.
EXECUTIVE SUMMARY
We are initiating coverage on Mead Johnson Nutritional
Co. As the only pure Infant formula play, Mead Johnson
offers the portfolio exposure to emerging market growth
with relatively little downside and a solid underlying
business. The business competes with Nestle, Danone, and
Abbott Technologies as one of four major multi-national
corporations that compete in the mid-high end pediatric
nutrition market. The business operates with high margins
and is currently benefiting from positive demographic and
consumer trends.
position as the market leader is still important to Mead
Johnson today. The bulk of Mead Johnson’s consumers are
mothers who are choosing infant formula over breastfeeding. The company markets its product to new mothers
but more importantly to pediatrician and other health
professionals that will help influence the mother’s final
decision on which formula to use. There is high importance
placed on safe and quality products in this industry, and
Mead Johnson has positioned itself as a market leader that
can price its products at a high level due to significant
brand equity.
2015 Revenue by Segment
In the past year, Mead Johnson has seen sharp declines in
share price due to emerging market demand concerns as
well as multiple missed earnings expectations. We believe
that market has overcorrected, as the emerging market
consumer’s buying power is still strengthening and will
continue to do so in the future. Currency headwinds have
also caused earnings to lag, but the underlying business is
sound and is set up to provide solid shareholder value in
the long term. The Henry Fund team also sees improving
conditions in emerging markets that will push the stock
price up to previous levels.
Management has launched a ‘Fuel for Growth’ initiative
that helped with margins by reducing employee head
count, eliminating waste, and locking in favorable input
prices, and we believe that these margins will be
sustainable long term. The company has benefited from
decreasing input prices and has locked in on these current
low prices through FY2016. Management has also
announced continued product innovation that will be key
for Mead Johnson to maintain its market leadership. The
company also expects to see an increasing domestic
market for a relatively new business segment in toddler
milk that should help fuel growth domestically.
Overall, we see 40% upside with relatively little downside,
and recommend a BUY.
COMPANY DESCRIPTION
Mead Johnson, located in Glenville, IL, was spun off from
parent company Bristol Myers Squibb in 2009. The
company develops and sells scientific based nutritional
products, specifically for children to provide them with the
best start in life. In the early 1900’s, the company
produced the first clinically-supported, physicianrecommended infant feeding product in the US. This
39%
Routine Infant
Forumla
2%
59%
Childrens Nutrition
Products
Other
2015 Revenue by Region
35%
1%
7%
Source: MJN 10-K
27%
30%
United States
China/Hong Kong
Mexico
Singapore
Other
Routine infant formula makes up almost 60% of the
company’s revenues. The company also sells pre and postnatal nutritional products to expecting and new mothers
and a line of toddler milk meant for children ages 1-3. The
company operates around the world, and it’s worth noting
that in 2011 sales in China topped North America,
becoming Mead Johnson’s largest market.
Page 2
Infant Formula
The Enfa brands of infant formulas is one of the world’s
leading brands in infant formula. Most of the formula
comes in powdered milk form and is mixed with water or
liquid concentrate, also to be diluted with water. There is
also ready to drink formula that comes in bottles that are
ready to use with no pre-work required. Formula in
general is a product used because of convenience. Feeding
with formula is more convenient than breast feeding, and
the ready-to-drink formula is another step up both in
convenience and price. Within infant formula, we can
categorize MJN’s business into three segments.
First, routine formula is meant as a substitute to breast
milk for full-term infants without any abnormal needs. This
routine formula is the sole source of nutrition or as a
supplement to breast feeding. Mead Jonson offers brands
such as Enfamil Premium, Emfapro Premium, Enfamil A+
and Enfalac A+ in this space. The company recently
released new packaging for its ready-to-drink formula,
which comes in a 32 oz. bottle that does not need to be
diluted or mixed.
The second formula segment is solutions products. These
products are also forms of infant formula meant as a
substitute for breast milk, but for infants that have dietary
needs or feeding intolerance to regular formula. Mead
Johnson has created formulas especially made to reduce
spit-up, fussiness, gas, and lactose intolerance. Products
such as Enfamil Genlease (for fussiness and gas), Enfamil
A.R. (to reduce spit-up), Enfamil ProSobee (soy-based
formula), and Enfamil LactoFree (for lactose intolerance)
make up this segment, but the brand name Enfamil is the
company’s powerhouse formula brand across formula
segments and has been a market leader.
Lastly, Mead Johnson has specialty products that address
infants with special medical needs. These formulas fit the
needs of low weight and premature infants, as well as
infants that are allergic to cow’s milk protein and other
food allergies. The Center for Disease Control reports that
just under 10% of all babies born last year in the US were
born preterm, and 8% were born with low birth rate1.
Throughout the forecasting period, we expect that infant
formula will increase its share in total revenue, as more
focus is placed on emerging markets and expanding the
infant formula line in those regions. With success in this
strategy we expect infant formula to grow as a proportion
of total sales form 59.1% in 2015 to 61.9% in by the end of
the forecasting period, driven by the forecasted 4%
growth. This will help optimize the company’s product mix,
and should help the company maintain or even expand its
current margins. In China, Research and Markets have
estimated that brands in China funded by Mead Johnson
and Danone have reached 60% gross margins, which is well
above the 25% gross margins averaged across the entirety
of the dairy production industry2.
Children’s Nutrition Products
The Children’s Nutrition offerings by Mead Johnson are
designed and formulated to meet the needs of children at
different stages of growth meant for children in different
age groups from the stage that children stop consuming
infant formula through their developmental years. These
products are not breast milk substitutes but instead are
beneficial as supplements to a regular diet. The main
brands in the segment are Enfagrow, Sutagen, and Lactum
that are all prepared like formula, coming in powered milk
form and mixed with water. Mead Johnson also sells milk
modifiers ChocoMilk and Cal-C-Tose that are mixed with
water for added nutritional benefits.
After breastfeeding or regular infant formula feeding,
often times mothers will transition their child off of the
formula and start transitioning to a regular diet. These
products offer nutritional assistance for the transition at
around 9-18 months of age and then continue to offer
supplemental nutrition for toddlers aged 1-3 years. The
Enfagrow business segment has seen double-digit growth
in the North America/European markets over the past
couple of years. This product segment is more price
sensitive than the infant formula segment, and
competitors often compete more on price than on brand
quality.
We are forecasting modest and lower than recent history
growth within the children’s nutrition products, growing at
near 3% through the forecasting period. The growth within
this segment was driven by North American growth and
though we expect growth from this segment, we see more
growth and focus on emerging markets and on capturing
growth in the infant formula space. Currently, Mead
Johnson only holds 6% market share in the toddler milk
space, and has been making investments to capture a
larger piece of the pie.
Page 3
Other Products
Mead Johnson also offers pre-natal nutrition products for
expecting mothers. This brand does not make up a
significant portion of revenue, but it can be a key
acquisition strategy to win customers over before they
make the first formula purchase. Some of these products
are formulated as nutritional supplements for
breastfeeding mothers.
Below is the revenue by segment in the past three years as
well as the first three forecasted years of the model. We
believe that the investments in emerging markets will
drive infant formula to make up more of the company’s
overall revenue than the other segments. Infant formula
made up 58.6% of total sales in 2013 and is forecasted to
make up 60.3% of sales in 2018.
3000.0
Forecasted Revenue by Segment
2000.0
1500.0
1000.0
500.0
2013
2014
Infant Formula
2015
2016E
2017E
Childrens Nutrition Products
There are two important factors to think about to begin
market sizing for infant formula: Birth rates and formula
usage. The only substitute to breast feeding is to use infant
formula of some kind. We can use forecasted data for birth
rates (There were an estimated 134 million live births in
2014 worldwide) and formula usage in order to get an idea
of how much the industry will grow in the future. The
world population continues to grow, so the birth rate
figures will be a tailwind for industry growth. However,
The World Health Organization has always advocated for
women to choose breast feeding as there infant’s sole
source of nutrition. The benefits of breast feeding are well
documented, and it will be key to monitor any major
changes in the percentage of mother’s who choose breast
feeding over infant formula.
Breast feeding rates vary greatly by country. The global
mean for infants exclusively breastfed for the first 6
months of life is about 40%. A quick calculation will show
that that means there are over 80 million newborns using
formula as a supplement or sole source of nutrition each
year. Rates in the US show breastfeeding rates trending
upward3.
2500.0
0.0
price itself at a higher level than many industry peers.
However, due to the very low price sensitivity, Mead
Johnson and its superior product peers are able to operate
with gross margins exceeding 60% in this space.
2018E
WIC Program in US
Other
Source: MJN 10-K and Valuation Model
Company Analysis
The infant formula market is a highly concentrated market
with only four main competitors worldwide. The US
market is dominated by Mead Johnson and Abbott
Technologies (Similac), the two companies accounting for
near 80% of U.S. formula market share. Due to this high
level of industry concentration, the incumbent firms
operate with higher margins than in other industries
where there is more competition for market share.
Mead Johnson is a high-end premium product, a market
leader in innovation and quality. The goal of all companies
making formula is to provide infant nutrition as close to
the nutrition received from breast feeding as possible.
This superior product strategy allows Mead Johnson to
In the United States, the WIC (Special Supplemental
Nutrition Program for Women, Infants, and Children)
program purchases a large amount of the infant formula in
the United States. The program believes that by providing
needed financial assistance to mothers of infants they can
help the development of these children and avoid future
health issues. The program provides a benefits card for
qualifying participants to use at authorized retailors and is
the third largest food assistance program in the US. The
benefits card specifies the type and brand of formula that
can be purchases, as well as when in the month that the
card can be used. Each individual state operates its own
rebate program, and they make the choice as to which
brands that their beneficiaries can purchase. Since the
1990’s, only three manufactures have been chosen as the
manufacturer of choice for these states, Mead Johnson
(Enfamil), Abbott Technologies (Similac), and Nestle
(Gerber). WIC state agencies reimburse the vendor
(grocery store, drug store, etc.) for the full retail price and
Page 4
then the state requests a rebate reimbursement from the
manufacturer. Manufacturer’s bid for these contracts, and
offer the lower price to the state agencies through the
rebate. According to the USDA, the rebates given to the
state for these programs are large.
Though this program does not provide great profit margins
for the manufacturers, it is most likely part of the reason
that the three manufacturers stated above maintain
almost all market share in the United States. This wide
moat protects the incumbent companies (Mead Johnson,
Nestle, and Abbott) from outside competition entering the
market. Also interesting is that being the WIC brand
provided support to the rest of the WIC brand company’s
product line. Even products not covered by WIC were
more likely to be the WIC brand4.
Marketing to Medical Professionals
The first formula that an infant consumes is almost always
supplied by the hospital, and it is crucial for companies in
this space to advocate for their product to medical
professionals. Mead Johnson employs a sales force that
educated health care professionals about the benefits of
using Mead Johnson’s products. Medical professionals
have significant influence as a trusted voice to mothers,
and after the decision to use formula is made, they will
recommend the brand that they trust most. After leaving
the hospital, the mother has usually made her choice
based on the best interest of her child and is unlikely to
switch brands after making the initial choice. This is due to
the fact that in this market, mothers make the first choice
believing that the brand they have chosen is the best for
the development and health of their newborn. As long as
the formula is providing the healthy development
expected, it is unlikely that a mother would switch formula
choice. This is where companies such as Mead Johnson
derive their pricing power.
Because of this unwillingness to switch brands, the
competition occurs for the first purchase, which is often
influenced by medical professionals providing care for
newborns. This causes companies to fiercely compete for
medical professional favor by advocating why their brand
is the best for the healthy development of infant children.
This point is illustrated by the announcement last summer
that Mead Johnson settled charges that a Chinese
subsidiary made improper payments to health-care
professionals to recommend Mead Johnson products to
new or expecting mothers5.
Recent Company Performance
Mead Johnson’s shares dropped over 30% in 2015 as
pessimism about emerging market and China GDP growth
permeated the headlines. China reported growth of under
7% for 2015, its lowest reported level in over a quarter
century. Most of the drop is due to macroeconomic factors
that have produced headwinds to revenue growth.
The past year was challenging for Mead Johnson. The mix
of unfavorable currency rates and weakening economies
in parts of Latin America led to the company missing four
straight revenue estimates and the last two earnings
estimates in the year and the corresponding fall in share
price. There was also a lot of price-based competition in
China as companies look to capture more market share in
the developing market. Part of the way that companies get
initial customers is by offering promotion prices or
discounts on initial formula purchases. Many companies
have been more aggressive with promotional pricing in
China hoping to get market share. Once a customer
chooses a brand, there is high perceived switching costs.
Customers do not want to change the formula that their
child drinks for fear of lost nutritional value6.
The company saw solid growth from the North
America/Europe business segment, delivering 4% revenue
growth over 2014. Volume contributed 1% of this increase,
where the product/pricing mix contributed the other 3%.
New CFO Michel Cup has announced some positive news
for the business in the annual shareholder call at the end
of January that should inspire investor confidence in Mead
Johnson’s ability to create a great deal of shareholder
value in the future. Company gross margins increases by
2.9% from 61.4% to 64.3% for 2015, helped mostly by the
decreasing price of milk but the company is also seeing
reductions in Sales, General, and Administrative costs as a
benefit of Mr. Cup’s Fuel for Growth initiative. Overall, the
company projected that the initiative shaved $20 million
dollars off of operating costs vs. October estimates. For
our forecast, we forecast decreasing operating expenses
from current levels around 41% to a level of 39.2% by the
end of the forecast.
A big chunk of the savings that Fuel for Growth contributed
came from a wave of employee reductions that were
executed in 4Q2015. The initiative has a goal of reducing
costs by another $60 million in FY2016.
Page 5
RECENT DEVELOPMENTS
China Regulatory Changes
Foreign companies were aided by the news that the
Chinese government passed legislation placing strict rules
on baby formula in China. The law requires more
monitoring by the Chinese government, and limits each
company to just 3 brands to be sold in the country. Some
estimates have claimed that up to 80% of current brands
on the Chinese market will be eliminated due to the law8.
Source: Company Annual Report
Despite a difficult FY2015, Management announced
increased guidance for FY 2016 to $3.48-$3.60 EPS, with
much of that range of the current mean analyst estimate
of $3.50. Our model forecasts $3.51 for FY 2016 EPS7.
4600.0
4400.0
4200.0
4000.0
3800.0
3600.0
3400.0
3200.0
3000.0
Revenue vs. EBIT Margin
30.00%
28.00%
26.00%
24.00%
22.00%
2013
2014
2015 2016E 2017E 2018E
Net sales
Mead Johnson offers a wholly imported brand of formula
in China that is produced in their Netherlands facility. This
product has been very successful and now account from
35% of the company’s sales in China’s mainland.
20.00%
EBIT Margin
Source: Company Reports and Valuation Model
The market in China has come under the government’s
watchful eye after a series of scandals have caused panic
among Chinese consumers. In 2008, milk formula
containing melamine killed at least six children and caused
many more illnesses6. Because of this tainted past, many
consumers in China view imported formula as safer.
Currently the wholly imported products only take up about
a third of the market-share in China, but many analysts see
this trending up as there is less clutter on the shelves and
consumers continue to trust western brands over locally
produced formula. Foreign company branded products
make up a total of 50% market share, which includes
products produced by multinationals locally. Total foreign
branded formula market share is up to 50% from just 30%
before the scandal9.
The investment thesis relies in part on the ability of Mead
Johnson to realize wider margins through growth initiative
and optimizing the product mix. Our model forecasts
increasing margins as a result of the before mentioned fuel
for growth initiative and favorable commodity prices,
increasing margins from historically around 23% to
forecasts nearing 24% EBIT margin throughout the
forecasted period.
Birth Rates Positive in US
In the past 55 years, birth rates have decreased steadily,
which made the news of a reversing trend in a western
country noteworthy. Birth rates in the United States rose
in 2014 for the first time since 2007. There was an increase
in the number of births per 1000 women aged 15-44 in the
United States to 62.9/1000. The strengthening economy is
likely a key reason why families are choosing to have more
children. However, the rate of 62.9 is still below levels over
80/1000 seen in the 1990s. The 62.9/1000 number
represents just shy of 4 million births in the United States
in 2014. The graph above shows the birth rate as well as
the total number of births in the United States from 19202014.
Page 6
Preterm birth rates are important to monitor for the
specialty formulas that Mead Johnson provides for infants
that are born preterm or low weight. The rate of preterm
and low weight babies has decreased since 2007.
Medicinal advances have helped bring this rate down in
the past couple of years. Preterm and low weight infants
are almost always given formula shortly after birth at the
hospital. The United States market accounted for 35% of
MJN sales in 2015, as well as healthy EBIT margins of
28.4%10.
Zika Virus Sparks Fear in Latin America
News of the zika virus in Latin America has raised serious
concerns with women who are pregnant or trying to
become pregnant. The virus has been reported in 31
countries and recently some experts have suggested that
the best way to prevent birth defects caused by the virus
is to postpone pregnancy. The CDC has advised American
women to avoid travel to affected areas11.
The effect on birth rates in Latin American countries
remains to be seen, but Latin America accounted for 18.5%
of Mead Johnson sales in 2015. A key to monitor will be
what zika does to birth rates in Latin American countries
and how it could affect revenues for Mead Johnson long
term. Latin America makes up a chunk of the other
category in the revenue decomposition, and slower than
historical growth estimates were forecasted in order to
account for the likely slowdown that will be caused by the
effects of the zika virus.
INDUSTRY TRENDS
Contrary to intuition, these lower milk prices may not be
good for the industry’s margins long term. In the past,
lower input prices have helped widen margins. However,
with the focus on capturing market share, companies are
levying heavier discounts in order to obtain volume
growth, most notably in the Chinese market. The price
cutting appears that it will continue longer term, and could
have a more lasting negative effect on margins across the
industry. When milk prices rebound, producers may not
have the flexibility to pass cost increases along to the
consumer.
Consumer Preference Changes
E-Commerce and Mobile commerce are becoming more
popular within the infant formula industry. Industry ecommerce has double in the past 3 years. Mead Johnson
is expanding its reaching and digital marketing in order to
expand sales through this fast growing platform. Mead
Johnson even uses popular social networking application
WeChat in China to connect with conusmers12.
As mentioned early in the section about the mistrust of
local brands in the Chinese markets, the consumer
preferences favor Mead Johnson as more and more
Chinese consumers are choosing multinational brand
names.
Mead Johnson is also launching a super-premium product
in China in 2016 that they have high hopes for. As with
other consumer products in China, the brand you buy can
come with a certain prestige or desired social status. This
also works with something as mundane as baby formula,
and the company believes that this release will provide
help to their revenue growth. There are already superpremium products offered on the market, but Mead
Johnson’s brand name should help it break into the
market. When Mead Johnson does release the product, it
should help expand margins and fuel topline revenue
growth. However, due to parents being unlikely to switch
brands after choosing one, it will take a while to realize
these gains.
Milk Prices Fall
Source: IBIS World
industry is predictably milk. In 2015, milk prices dropped
29% in 2015. The price was driven down by global demand.
Economists expect the milk prices to stabilize and hover
around $16.00 per hundredweight.
Commodity Prices fell sharply in 2015 after a five year runup. The most important commodity to the baby food
Also worth noting is the rise in organic formula being
preferred by some consumers, now estimated to make up
Page 7
nearly 7% of the global market. There are several
producers of organic formula, and as parents grow ever
more concerned about what they are putting into their
children’s bodies, this could be a growth segment,
especially in developed economies list the United States
and Europe. Mead Johnson currently does not have an
organic option included in its product offerings13.
MARKETS AND COMPETITION
Over 80% of the world’s population lives in developing
countries. Global birthrates have decreased across the
globe in the past 55 years, but the highest birth rates
recorded are still in these developing countries. These
countries are urbanizing and the growth of the middle
class and rising female workforce participation create
opportunities for formula companies to expand their
business. Formula is often used as a product of
convenience, and women that enter the workforce are
more likely to opt for the product of convenience. Women
who choose to breastfeed often return to work shortly
after giving birth, and at that time will switch to at a
minimum supplementing with formula instead of
exclusively breastfeeding. Due to the trend of more
women in the workforce in these areas, it has opened the
door for pediatric nutrition companies to come in and
provide the convenient products that are seeing growing
demand14.
The chart below shows just how dramatic the growth has
been in the in Southeast Asia compared to the rest of the
world in the baby food and formula market.
Source: Kalorama Information
This chart helps show why the emerging markets are so
important, and why companies like Mead Johnson are
focusing so much of their capital in these markets15.
Peer Comparisons
The baby food and formula industry sales are estimated at
about $35 billion for 2015. On the formula side, there are
five companies that compete with marketed formulas
worldwide. Mead Johnson, Abbott Technologies (Similac),
Nestle (Gerber), and Danone (Dumex). Outside of these
four, there are some local competitors, but the lion’s share
of the market goes to these four multinationals. Also
mentioned in this section is generic manufacturer Perrigo
(Bright Beginnings and Generics). Global sales in 2014 for
infant formulas were $19.4 billion, increasing by about 5%
CAGR over 2007. Demand in new markets drive estimates
up to $26.9 billion by 2021. Of that estimated $26.9 billion
in revenue by 2021, over $14 billion is expected to come
from the Asia Pacific region. The mature markets such as
the US and Europe are very concentrated to the names
listed above, and the emerging markets are more
fragmented with the large multinationals and small local
distributers. As these markets mature, expect to see more
concentration in market share among the giants. The
industry leaders use promotional pricing in order to offer
prices that are more competitive with local distributers,
and after the market is more concentrated can increase
prices to more desirable levels.
The chart below outlines the major competitors in the
infant formula industry as well as some company
characteristics. Mead Johnson’s position as a player only in
the pediatric nutrition market likely explains the higher
level of operating margins it maintains relative to its peers.
60% of MJN’s sales come from infant formula, whereas
only <10% of Nestle sales and about 20% of Danone sales.
Source: Market Realist
Page 8
Nestle
The largest company in the space is Nestle, the Swiss food
giant with a market cap of over $225 billion. However,
Nestle is a large conglomerate that is the manufacturer of
many of the packaged goods you would find in your local
grocery store.
Nestle acquired Gerber in 2008 and has since rebranded
its formula products under the Gerber name. We see
Nestle as the key competitor, because they have the
resources and infrastructure that dwarfs the other
competitors and could most easily afford a price war in
emerging markets in order to grab market share. They also
acquired market leader in infant nutrition Wyeth. Nestle
clearly sees the opportunities available in this market and
is aggressively looking to allocate resources to capitalize
on those opportunities. Worldwide, Nestle is the largest
supplier of pediatric nutrition16.
Danone
Danone is a French company and the maker of the brand
Dumex. Dumex is largest infant formula brand in China.
Dumex was acquired by Danone in 2007. Danone operates
three different product segments, one of them being early
life nutrition. Outside of the US, Danone is a formidable
competitor to Mead Johnson’s brands. Danone has
partnered with state-owned Yashili for Dumex, it’s locally
made brand in China. However, with the shift in
preference to imported brands, Danone may see market
share deteriorate if they are not able to make up losses in
Dumex with their own imported brand of formula17.
Abbott Technologies
Abbott Technologies branded infant formula Similac is a
market leader in the United States and expanded into
emerging markets in 2012. Abbott is Mead Johnson’s
primary competitor in the US, both making up about 40%
of the market. Abbott is the leader in the US in the high
priced ready-to-drink formula, accounting for 68% of
marker share compared to Mead Johnson’s 28%.
Perrigo
Perrigo is the manufacturer of many of the generic store
branded formulas. In most of the developed markets,
generics do not hold significant market share. It will be key
to watch if the lower prices of generics will drive more
consumers to choose their brands, but that seems unlikely
based on historical trends. Generics hold less than 1%
market share in the infant formula industry because most
medical professionals recommend one of the branded
products and all government assistance programs only use
the branded formula as qualified purchases.
Company Stock Performance
50%
MJN
30%
Nestle
Abbott
Danone
S&P 500
10%
-10%
-30%
-50%
M
A
M
J
J
A
S
O
N
D
J
F
Source: Yahoo Finance
The above chart shows how Mead Johnson has lagged
behind its peers in share price performance in the past
year. This is largely due to its exposure to emerging
markets and its position as the only pure infant
formula/pediatric nutrition play. For example, Nestle is a
much larger and more diversified company than MJN.
These companies can maintain these higher margins
because of little threat to entry and the extreme weight
placed on trusted brand in the buying decision process.
According to a Nielsen marketing survey released last
August, a trusted brand name was the most important
factor to global consumers when selecting a formula. The
other most important factors were good overall nutrition
and safe ingredients and processing. One could argue that
the trusted brand name also implied good overall nutrition
and safe processing18.
Competition across the Globe
Market share data below from Bloomberg shows what
share of the multinational market that each of the large
multinational companies have. As of 2014 Nestle has the
largest share of the Chinese markets, with Mead Johnson,
Abbott, and Danone all competing for the second place
spot. As more of the smaller players on the graph exit the
market as it becomes more concentrated, there will be
more movement in market share and the company best
Page 9
positioned to capture the newly available market share
will greatly help increase segment revenues. As of right
now, market share in China is the grand prize of the
industry.
2015 Top 5 Market Share -- SE
Asia
10%
11%
17%
Nestle
MJN
38%
Source: JP Morgan
Danone
The above shows the market share held by each of the top
4 formula producers within the top 10 markets in the
world in 201520.
RLC
24%
Abbott
ECONOMIC OUTLOOK
Slowing Growth in China
Source: Bloomberg
Top 5 Market Share
52
One of the lags on performance for Mead Johnson was due
to a decrease in China sales. In January, the Chinese
government announced that its economy grew at a rate of
6.9% for 2015, the country’s slowest rate in over a quarter
century. It should be noted that even though the rate of
growth has slowed, the nominal output gain seen in 2015
is greater than the growth of 14.2% in 2007.
50
48
46
44
The more important concern is about the authenticity of
the numbers. There has been concern expressed that the
Chinese government is massaging the GDP numbers to
smooth its growth trajectory21.
42
40
2011
2012
2013
2014
2015
Source: Bloomberg
The graph above shows market share of the top 5
competitors in Southeast Asia over the past 5 years. The
trend is that more consumers are choosing foreign brands
like Mead Johnson, and we expect this trend to continue
and drive growth for MJN19.
The amount of market share captured by large
multinationals is important to watch for consumer
preferences. The next graph shows how much market
share each of the top 4 competitors have in the top 10
infant formula markets in the world.
Source: IBIS World
What keeps us optimistic about emerging markets,
including China, is that though the economy may not
experience the levels of growth that it has been used to,
Page 10
the country’s people continue to see their incomes rise,
and with this rise in income, they will start to choose more
of the branded formula like Mead Johnson. We believe
that even if there is a slow-down in emerging markets,
defensive brands like Mead Johnson still have room to
grow in the region. We believe the trend of mothers
choosing foreign brands will continue, and even though
the economy may be growing at a slower clip than in
previous years, Mead Johnson still has a lot to gain from
China.
China also made news last year by announcing that it
would be softening its current one child policy and
allowing certain couples to have two children. It remains
to be seen what long term affects that the policy change
will have on population growth in China22. The policy
relaxation requires couples to apply for permission give
birth to a second child. Many economists have stated that
the policy of limiting children at all needs to be eliminated
all together because China needs stronger population
growth if they want to see the government’s targeted GDP
growth. Economist Huang Wenzheng has stated that a
shrinking population would be detrimental to China
development. The total population continues to grow, but
the working age population (aged 16-59) declined in both
2012 and 2013. The concern is that China could become
the new Japan, where the aging population (25% of all
residents) has contributed in part to what economists have
called the lost decade in Japan21.
India has the largest population of children under 4,
however, the market for infant formula is very small
relative to China and Indonesia23.
Dollar Strength Puts Pressure on Profits
U.S. companies such as Abbott Laboratories and Mead
Johnson are exposed to significant foreign exchange rate
risk, and as the dollar has strengthened in recent years, the
companies make less money on goods sold outside of the
U.S. If market volatility continues and investors see the
U.S. dollar as a secure asset, the companies will continue
to operate at a disadvantage to local competitors
overseas. In contrast, any weakening in the dollar would
provide relief. The company reported that the unfavorable
foreign exchange rate impact caused reported earnings to
be 6% lower than they would have been on a constant
dollar basis.
Growth in Other Emerging Markets
There is a significant opportunity in Africa and the Middle
East in a relatively untapped market. By 2018, it is
estimated here will be 7.3 million more 0-3 year olds in the
region than there were in 2013. The large multinational
players focused on in this report will likely be able to target
more affluent areas with their high end product lines.
Indonesia is home to world’s 4th largest population and is
home to 22 million children under the age of 4. The
country has an expanding middle class and multinational
competitors are lining up to penetrate the market. Nestle
invested $200 million to start production in the country.
The government has encouraged exclusive breast feeding
for the first 6 months after birth, so the challenge for
producers is to convince parents of the developmental
benefits of using formula.
Source: Bloomberg
Our team does not see exchange rates reversing trend in
the near term, and the currency headwinds will remain for
the US companies. In the long term, weakening of the
dollar vs. currencies in markets in Southeast Asia and Latin
America will help relieve the pressure.
CATALYSTS FOR GROWTH
The success of Mead Johnson will rely heavily on whether
or not it will be able expand its market share in key
markets. Currently holding roughly 9% of the Chinese
market, it will be important to watch if the flight to quality
continues and more consumers choose imported brands.
As long as this trend continues, it should be a sign for
Page 11
positive growth for Mead Johnson. They are well
positioned to continue being a market leader, and our
team expects them to be able to sustain leadership in
these new markets.
Mead Johnson will rely on their ability to promote its
brand as the healthiest and safest for infant development,
and we should see an early test on whether or not they will
be affective in doing so. In China, the super-premium
market makes up 20% of the overall market, making the
success of their release of a super-premium product onto
the market will be key to watch. Their ability to gather
more market share as the market becomes more
concentrated is important.
INVESTMENT POSITIVES
• MJN is a leader in a highly concentrated industry with
strong profit margins. Continued growth in new markets
around the world provide opportunities to expand its
product reach.
• MJN has made significant investments in China and other
emerging markets where growth prospects remain
strongest.
• Company has shown signs of improving efficiencies and
freeing up more cash to invest in crucial markets. They are
the best positioned to capture new market share.
INVESTMENT NEGATIVES
• There is inherent risks with relying heavily on developing
markets. It will be key to monitor data coming out of
emerging markets.
• Competition for new market share among competitors is
fierce and could push down margins.
• MJN operates in a high margin industry, there is a chance
that competitive pricing could have a negative effect on
forecasted margins.
VALUATION
A 7 year forecast window was used for the DCF and DDM
valuation methods. The models revenue estimates are
down 1.5% from 2015 sales that is in line with company
guidance and analyst estimates, with sales picking up after
FY2016 and continuing to grow at around 3.0-3.5% per
year throughout the 7 year forecast period. The increased
sales are forecasted to come from emerging markets and
China as consumers continue to choose the multinational
brands over locally produced formula, and also by Mead
Johnson’s release of their super premium product. The
model forecasts a weak 2016 for emerging markets,
followed by a rebound led by China with sales increases in
the region forecasted at 7.2% for FY 2017 and FY 2018.
Cost of sales is projected slightly below historical levels,
helped by lower commodity prices, and a modest decrease
in operating expenses is projected due to benefits from
the company’s fuel for growth initiative and increased
operating efficiencies. The model also forecasts infant
formula making up more of the revenue mix, from 59.1%
in 2015 all the way to 61.9% in 2022. Mead Johnson
operates with higher margins in the infant formula
segment, and should help keep gross margins strong even
if input prices such as milk increase.
For DCF valuation, a 3% terminal growth rate was used
after the 7 year forecast window. Using 3% terminal
growth, the model yields a target price of $120.21 For the
DDM model, we used EPS continuing value growth of 4%
along with a ROE of 32.21% and the model yields a price of
$96.51. To calculate the weighted average cost of capital
(WACC), I used the company’s current capital structure
which includes a recently increased level of debt. The most
recent 30 year debt issuance was issued at a rate of 4.6%,
which was used as the cost of debt. The cost of equity
included the team’s market risk premium of 5%, and the
two year average company beta of 0.88 to get a cost of
equity of 6.98%. Management is using the current cheap
money in part to buy back shares as well as fuel growth in
emerging markets.
Relative P/E multiple valuation for Mead Johnson proved
challenging as there are no other pure pediatric nutrition
plays. However, we deemed it best to use its broader
category of packaged foods and used companies such as
Kellogg, General Mills, and Con Agra. The current relative
P/E valuation gave a price of $89.95, close to our DDM
model’s price. We believe that the DCF model is the best
predictor of the intrinsic value of MJN, and the target price
was used mostly because of the DCF price of $104.43.
KEYS TO MONITOR
Buyout? – There has been speculation of a buyout for
Mead Johnson. Although right now it is merely whispers,
the consumer staples industry has consolidated in many
Page 12
mature industries, and a company like Danone showing
interest in buying Mead Johnson would not come as a
surprise.
Regulatory Changes – The infant formula business is
subject to government programs and regulations (such as
the WIC program in the US). Changes in these programs or
regulations that are unfavorable for MJN could adversely
affect MJN’s growth prospects.
Birth Rates – This industry relies on birth rates remaining
steady or increasing. It’s important to monitor economy
health and birth rate trends in key markets.
Female Workforce Penetration – As of 2012, only 25% of
Indian women were in the labor force in some capacity or
seeking employment. As these numbers rise, not only in
India but in many markets across the globe, the number of
women that use formula for feeding will also increase. 80%
of the world lives in these developing areas that represent
more opportunities for MJN19.
Market Share - The most important factor for this high
margin business in market share. The market for infant
formula is growing, but the competition for market share
is fierce. Every one of the main competitors has cited China
in company reports as a source of great opportunity for
growth. It’s important that Mead Johnson position itself to
capture more market share in the coming years, and they
have made the investments and have the brand to do just
that.
REFERENCES
1. CDC.gov
2. "Research Report on Market of Formula Milk
Powder for Infants in China." PRNewswire. N.p., 5
Feb. 2015. Web.
3. Mead Johnson Nutrition Co, Inc. Annual Report
(10-K), EDGAR SEC.
4. Oliveria, Victor, Elizabeth Frazao, and David M.
Smallwood. “The Infant Formula Market:
consequences of a Change in the WIC Contract
Brand.” SSRN Electronic Journal.
5. SEC.gov
6. Key, Diana. "Welcome to Market Realist." Mead
Johnson Has Big Opportunities for Growth in
China. N.p., n.d. Web. 1 Apr. 2016.
7. FactSet
Page 13
8. South China Morning Post, 29 December 2015,
“Foreign firms boosted by China’s new law on
baby formula”
9. New York Times, 19 September 2008, “China’s
Baby Formula Scandal”
10. Births – Final Data from 2014.” CDC.gov. Center
for Disease Control, 23 Dec. 2015.
11. New York Times, 9 March 2016, “WHO Advises
Pregnant Women to Avoid Areas Where Zika is
Spreading”
12. Key, Diana. "Welcome to Market Realist." Mead
Johnson Has Big Opportunities for Growth in
China. N.p., n.d. Web. 1 Apr. 2016.
13. Forbes, 12 December 2014, “The Business of Baby
Food Grows Up”
14. The Nielsen Company. "Global Baby Care Report."
pag. Nielsen.com. 1 Aug. 2015. Web. 6 Feb. 2016.
15. Kalorama Information. “Clinical Nutrition
Products: A Worldwide Perspective” July 2014.
16. “Wyeth Nutrition Acquisition”. Nestle.com. Nestle
SA, 21 Apr 2012.
17. Packaged Facts Market Research, February 2013,
Baby Food and Babycare Supplies
18. Packaged Facts Market Research, February 2013,
Baby Food and Babycare Supplies
19. JP Morgan North America Equity Research, 17
March 2016, MJN
20. Bloomberg Intelligence
21. The Economist, January 2016, “The worries about
China’s slowing growth”.
22. The Economist, December 2013, “Why is China
Relaxing its One-Child Policy?”
23. "Zenith International." 7% Growth for $50 Billion
Global Infant Nutrition Market. N.p., n.d. Web. 10
Apr. 2016.
24. “Baby Boom or Economy Bust: Stern Warning
about China’s Falling Fertility Rate.” China real
Time Report RSS. N.p., 2 Sept. 2014.
25. Crabtree, Steve, and Anita Pugliese. “China
Outpaces India for Women in the Workforce.”
Gallup.com. 2 Nov. 2012
26. Susquehanna Financial Group LLP, 26 October
2015, MJN
27. JP Morgan North America Equity Research, 20
November 2015, MJN
28. HSBC Global Research, 6 January 2016, BN-FR
29. The Economist, January 2016, “Grossly Deceptive
Plans”
30. FDA - "U.S. Food and Drug Administration." FDA
Takes Final Step on Infant Formula Protections.
Food & Drug Administration, 9 June 2014. Web. 05
Feb. 2016
31. BTIG, 4 June 2015, ABT
32. Euromonitor
IMPORTANT DISCLAIMER
Henry Fund reports are created by student enrolled in the
Applied Securities Management (Henry Fund) program at
the University of Iowa’s Tippie School of Management.
These reports are intended to provide potential employers
and other interested parties an example of the analytical
skills, investment knowledge, and communication abilities
of Henry Fund students. Henry Fund analysts are not
registered investment advisors, brokers or officially
licensed financial professionals. The investment opinion
contained in this report does not represent an offer or
solicitation to buy or sell any of the aforementioned
securities. Unless otherwise noted, facts and figures
included in this report are from publicly available sources.
This report is not a complete compilation of data, and its
accuracy is not guaranteed. From time to time, the
University of Iowa, its faculty, staff, students, or the Henry
Fund may hold a financial interest in the companies
mentioned in this report.
Page 14
Mead Johnson Nutrition Company
Revenue Decomposition
Fiscal Years Ending Dec. 31
Sales by Product Type
Infant Formula
Childrens Nutrition Products
Other
Net Sales
2013
2014
2015 2016E
2459.7 2537.0 2407.1 2382.1
1653.3 1788.4 1593.1 1564.0
87.7
83.9
71.1 64.2
4200.7 4409.3 4071.3 4010.2
Infant Formula
Childrens Nutrition Products
Other
Net Sales Growth Rates
7.2%
11.2%
-26.2%
7.7%
Routine Infant Forumla
Childrens Nutrition Products
Other
% Net Sales
2017E
2018E
2019E
2020E
2486.2 2590.4 2703.3 2793.6
1606.3 1649.6 1689.6 1731.1
58.1
55.8
53.4
52.7
4150.6 4295.9 4446.2 4579.6
2021E
2022E
2900.9 3007.4
1764.2 1797.6
51.9
51.0
4717.0 4858.5
3.1% -5.1% -1.0%
8.2% -10.9% -1.8%
-4.3% -15.3% -9.8%
5.0% -7.7% -1.5%
4.4%
2.7%
-9.4%
3.5%
4.2%
2.7%
-3.9%
3.5%
4.4%
2.4%
-4.5%
3.5%
3.3%
2.5%
-1.3%
3.0%
3.8%
1.9%
-1.5%
3.0%
3.7%
1.9%
-1.7%
3.0%
58.6%
39.4%
2.1%
100%
57.5%
40.6%
1.9%
100%
59.9%
38.7%
1.4%
100%
60.3%
38.4%
1.3%
100%
60.8%
38.0%
1.2%
100%
61.0%
37.8%
1.2%
100%
61.5%
37.4%
1.1%
100%
61.9%
37.0%
1.1%
100%
948.2
1315.8
328.2
28.0
1580.5
4200.7
1043.3
1379.7
345.5
30.5
1610.3
4409.3
1082.5
1238.9
281.2
22.9
1445.8
4071.3
1122.9
1169.0
282.7
22.1
1411.6
4010.2
1116.5
1253.5
294.7
22.8
1461.0
4150.6
1121.2
1340.3
305.0
23.6
1503.6
4295.9
1142.7
1405.0
315.7
24.5
1556.2
4446.2
1144.9
1479.2
325.2
25.2
1602.9
4579.6
1146.2
1542.5
334.9
25.9
1665.1
4717.0
1166.0
1608.2
345.0
26.7
1710.2
4858.5
Sales by Region
United States
China/Hong Kong
Mexico
Singapore
Other
Net Sales Growth Rates
-4.2%
13.4%
3.5%
24.4%
12.0%
7.7%
10.0%
4.9%
5.3%
8.9%
1.9%
5.0%
3.8%
-10.2%
-18.6%
-24.9%
-10.2%
-7.7%
3.7%
-5.6%
0.5%
-3.7%
-2.4%
-1.5%
-0.6%
7.2%
4.2%
3.5%
3.5%
3.5%
0.4%
6.9%
3.5%
3.5%
2.9%
3.5%
1.9%
4.8%
3.5%
3.5%
3.5%
3.5%
0.2%
5.3%
3.0%
3.0%
3.0%
3.0%
0.1%
4.3%
3.0%
3.0%
3.9%
3.0%
1.7%
4.3%
3.0%
3.0%
2.7%
3.0%
Sales by Region
United States
China/Hong Kong
Mexico
Singapore
Other
% Net Sales
22.6%
31.3%
7.8%
0.7%
37.6%
100%
23.7%
31.3%
7.8%
0.7%
36.5%
100%
26.6%
30.4%
6.9%
0.6%
35.5%
100%
28.0%
29.2%
7.1%
0.6%
35.2%
100%
26.9%
30.2%
7.1%
0.6%
35.2%
100%
26.1%
31.2%
7.1%
0.6%
35.0%
100%
25.7%
31.6%
7.1%
0.6%
35.0%
100%
25.0%
32.3%
7.1%
0.6%
35.0%
100%
24.3%
32.7%
7.1%
0.6%
35.3%
100%
24.0%
33.1%
7.1%
0.6%
35.2%
100%
Sales by Region
United States
China/Hong Kong
Mexico
Singapore
Other
Net Sales
59.1% 59.4%
39.1% 39.0%
1.7% 1.6%
100% 100%
Mead Johnson Nutrition Company
Income Statement (numbers in millions)
Fiscal Years Ending Dec. 31
Net sales
Cost of products sold
Depreciation & Amortization
Gross profit
Operating expenses
Selling, general and administrative
Advertising and promotion
Research and development
Other income / expenses – net
Operating Income (EBIT)
EBIT Margin
Interest expense – net
Earnings before income taxes
Provision for income taxes
Minority interest expense-net of tax
Net earnings
Net earnings / loss attributable to noncontrolling interests
Net earnings attributable to shareholders
# shares outstanding
Basic EPS
dividends/share
2013
2014
4200.7 4409.3
1445.4 1609.0
83.1
91.6
2672.2 2708.7
61.43%
1697.3 1720.4
903.5 978.9
645.1 638.7
100.2 115.1
48.5
-12.3
974.9 988.3
23.21% 22.41%
50.6
60.3
924.3 928.0
235.1 199.2
0.0
0.0
689.2 728.8
-5.4
-9.0
683.8 719.8
202.0
3.37
1.36
202.3
3.55
1.50
2015
4071.3
1356.2
99.1
2616.0
64.25%
1679.8
890.6
641.8
108.4
39.0
936.2
23.00%
65.0
871.2
215.9
0.0
655.3
-1.8
653.5
186.5
3.28
1.65
2016E
4010.2
1275.3
103.3
2631.7
2017E 2018E
4150.6 4295.9
1369.7 1460.6
105.1 109.3
2675.8 2726.0
2019E 2020E 2021E 2022E
4446.2 4579.6 4717.0 4858.5
1511.7 1557.1 1603.8 1651.9
114.1 116.6 120.4 124.1
2820.4 2905.9 2992.8 3082.5
1620.1 1660.2 1696.9
810.1
830.1 848.4
664.3
680.7 695.7
105.3
107.9 110.3
40.5
41.5
42.4
1011.6 1015.6 1029.1
25.22% 24.47% 23.96%
137.5
142.4 147.3
874.0
873.3 881.8
215.7
209.6 212.3
0.0
0.0
0.0
658.3
663.7 669.5
-1.8
-1.8
-1.9
656.5
661.8 667.6
1742.9 1795.2 1849.1 1904.5
871.5 897.6 924.5 952.3
714.6 736.0 758.1 780.9
113.3 116.7 120.2 123.8
43.6
44.9
46.2
47.6
1077.5 1110.7 1143.8 1178.0
24.23% 24.25% 24.25% 24.25%
152.5 157.1 161.8 166.6
925.0 953.6 982.0 1011.3
220.2 231.4 237.3 243.3
0.0
0.0
0.0
0.0
704.9 722.2 744.7 768.0
-2.0
-2.0
-2.1
-2.1
702.9 720.2 742.6 765.8
186.8
3.51
1.73
187.0
3.54
1.82
187.0
3.57
1.91
186.7
3.77
2.01
186.1
3.87
2.11
185.2
4.01
2.21
183.8
4.17
2.32
Mead Johnson Nutrition Company
Balance Sheet (numbers in millions)
Fiscal Years Ending Dec. 31
Cash and cash equivalents
Receivables—net of allowances
Note receivable
Inventories
Deferred income taxes – net of valuation allowance
Income taxes receivable
Prepaid expenses and other assets
Total current assets
1050.80
384.40
0.00
534.80
75.30
15.90
56.90
2118.10
1297.70
387.80
0.00
555.50
0.00
7.70
82.60
2331.30
1701.40
342.50
0.00
484.90
0.00
13.20
60.40
2602.40
2015
2016E
2017E 2018E
2019E
2020E
2021E
2022E
2031.29 2408.78 2694.74 3638.47 3889.62 3269.67 3328.22
337.36 349.17 361.39 374.04 385.26 396.82 408.72
0.00
0.00
0.00
0.00
0.00
0.00
0.00
504.97 506.41 532.97 548.74 562.85 583.32 598.62
0.00
0.00
0.00
0.00
0.00
0.00
0.00
13.10
15.53
13.56
13.47
15.06
15.55
16.04
58.87
64.06
66.35
70.36
69.81
72.29
75.09
2945.59 3343.96 3669.01 4645.08 4922.60 4337.65 4426.70
Property, plant and equipment – net
Goodwill
Other intangible assets – net
Deferred income taxes – net of valuation allowance
Other assets
Total assets
867.50
196.80
97.50
37.00
157.20
3474.10
912.70
162.70
75.40
150.40
131.30
3763.80
964.00
126.00
54.90
118.50
132.30
3998.10
1022.61 1021.89 1062.96 1109.54 1134.50 1170.94 1207.36
126.00 126.00 126.00 126.00 126.00 126.00 126.00
38.43
26.90
18.83
13.18
9.23
6.46
4.52
118.50 118.50 118.50 118.50 118.50 118.50 118.50
146.23 161.94 179.34 198.61 218.89 241.24 265.87
4397.36 4799.19 5174.65 6210.92 6529.72 6000.79 6148.95
Short-term borrowings
Accounts payable
Dividends payable
Current portion of long-term debt
Note payable
Accrued expenses and other liabilities
Accrued expenses excluding related party payables-net
Related party payables-net
Accrued rebates and returns
Deferred income – current
Income taxes – payable and deferred
Deferred income taxes—current
U.S. and foreign income taxes payable
Related party debt and lease-current
Total current liabilities
2.00
566.80
69.30
505.60
0.00
220.00
0.00
0.00
314.90
46.60
56.10
0.00
0.00
0.00
1781.30
4.10
512.30
76.60
0.00
0.00
203.70
0.00
0.00
329.10
34.30
45.20
0.00
0.00
0.00
1205.30
3.00
481.50
77.80
0.00
0.00
213.00
0.00
0.00
376.80
35.50
65.70
0.00
0.00
0.00
1253.30
0.00
0.00
0.00
0.00
0.00
0.00
0.00
541.90 543.45 571.94 588.86 604.00 625.97 642.40
79.36
80.94
82.56
84.21
85.90
87.62
89.37
0.00
0.00
0.00 700.00 750.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
225.57 233.46 241.63 250.09 257.59 265.32 273.28
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
371.15 384.14 397.58 411.50 423.84 436.56 449.66
39.80
38.83
40.27
40.15
42.50
44.31
45.12
41.63
38.82
38.76
39.52
41.87
43.72
44.41
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
1299.40 1319.63 1372.75 2114.33 2205.71 1503.49 1544.23
0.00
1009.10
15.30
161.80
156.40
0.00
0.00
3123.90
0.00
1492.80
12.00
211.10
192.80
0.00
0.00
3114.00
0.00
2981.00
8.70
132.40
215.20
0.00
0.00
4590.60
0.00
0.00
0.00
0.00
0.00
0.00
0.00
2990.04 3094.70 3203.01 3315.12 3414.57 3517.01 3622.52
12.02
12.94
12.02
12.09
12.46
13.42
13.81
125.78 119.49 113.52 107.84 102.45
97.33
92.46
215.20 215.20 215.20 215.20 215.20 215.20 215.20
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
4642.44 4761.96 4916.50 5764.58 5950.39 5346.45 5488.21
BMS investment
Common Stock
Additional Paid In (Distributed) Capital
Retained earnings
Treasury stock – at cost
Accumulated other comprehensive loss / income
Redeemable noncontrolling interest
Total shareholders’ equity / deficit
Noncontrolling interests
Total equity / deficit
0.00
2.10
-721.50
1432.30
-351.90
-69.20
49.70
341.50
8.70
350.20
0.00
2.10
-641.30
1775.00
-362.60
-198.90
66.00
640.30
9.50
649.80
0.00
1.90
-564.20
640.40
-362.60
-347.80
0.00
-632.30
39.80
-592.50
0.00
0.00
0.00
0.00
0.00
0.00
0.00
2.83
3.76
4.69
5.63
6.56
7.49
8.42
-564.20 -564.20 -564.20 -564.20 -564.20 -564.20 -564.20
973.20 1294.85 1605.36 1933.88 2262.19 2595.38 2934.38
-453.25 -566.56 -708.20 -885.25 -1106.57 -1383.21 -1729.01
-243.46 -170.42 -119.30
-83.51 -58.45 -40.92 -28.64
0.00
0.00
0.00
0.00
0.00
0.00
0.00
-284.88
-2.57 218.35 406.54 539.53 614.54 620.94
39.80
39.80
39.80
39.80
39.80
39.80
39.80
-245.08
37.23 258.15 446.34 579.33 654.34 660.74
Total liabilities and equity / deficit
3474.10 3763.80 3998.10 4397.36 4799.19 5174.65 6210.92 6529.72 6000.79 6148.95
Related party debt—noncurrent
Long-term debt
Deferred income taxes – noncurrent
Pension and other post-employment liabilities
Other liabilities – noncurrent
Deferred income-noncurrent
Other liabilities excluding deferred income-noncurrent
Total liabilities
2013
2014
Mead Johnson Nutrition Company
Cash Flow Statement (numbers in millions)
Fiscal Years Ending Dec. 31
Operating Activities
Net earnings
Adjustments to reconcile net earnings to net cash provided by operating activities
Depreciation and amortization
Depreciation
Amortization
Impairment charges and asset write-offs
Minority interest expense
Distribution to minority interests
Gain on sale of intangible assets
Other, net
Provisions for bad debts
Gain / loss on disposal of property, plant, and equipment
Stock-based compensation expense
Deferred income tax
Exchange loss from devaluation
Pension and other post-employment benefits expense
Other
Changes in assets and liabilities
Receivables
Inventories
Accounts payable
Accrued expenses, rebates and returns
Accrued expenses
Accrued rebates and returns
Income taxes payable
Other assets and liabilities
Prepaid expenses and other assets
Deferred income
Other liabilities
Accounts payable, accrued expenses, and deferred income
Payments for settlement of interest rate forward swaps
Pension and other post-employment benefit contributions
Net cash provided by operating activities
2013
2014
2015
689.2
136.5
83.1
-----0.0
53.4
--32.6
23.0
2.2
-7.2
2.8
0.3
-37.7
-108.2
56.0
14.8
--27.0
48.4
----0.0
-19.4
806.6
728.8
168.8
91.6
-----0.0
77.2
--30.4
-15.0
6.1
59.1
-3.4
-54.0
-36.5
-47.0
2.8
12.9
--5.3
8.5
-----45.0
-5.2
793.4
655.3
15.3
38.8
----0.0
-90.1
909.9
Investing Activities
Capital expenditures
Sale of property, plant and equipment
Proceeds from / investment in other companies
Payment for acquisition
Net cash used in investing activities
-240.4 -186.6
2.6
0.2
-2.7
4.0
0.0
0.0
-240.5 -182.4
-173.7
0.5
0.0
0.0
-173.2
99.1
-----0.0
-1.4
--26.4
43.3
2.3
12.8
-1.4
167.8
10.4
25.8
3.7
73.8
Mead Johnson Nutrition Company
Cash Flow Statement (numbers in millions)
Cash Flows From Operating Activities
Net earnings
Adjustments to reconcile net earnings to net cash provided by operating activities
Depreciation and amortization
Changes (increases or decreases) in working capital accounts
Receivables—net of allowances
Note receivable
Inventories
Deferred income taxes – net of valuation allowance
Income taxes receivable
Prepaid expenses and other assets
Short-term borrowings
Accounts payable
Dividends payable
Current portion of long-term debt
Note payable
Accrued expenses and other liabilities
Accrued rebates and returns
Deferred income – current
Income taxes – payable and deferred
Total Cash Flows From Operating Activities
2016E
656.51
2017E
661.85
2018E
667.62
2019E
702.90
2020E
720.19
2021E
742.62
2022E
765.84
103.28
105.05
109.27
114.06
116.63
120.37
124.12
5.14
0.00
-20.07
0.00
0.10
1.53
-3.00
60.40
1.56
0.00
0.00
12.57
-5.65
4.30
-24.07
792.59
-11.81
0.00
-1.44
0.00
-2.43
-5.19
0.00
1.55
1.59
0.00
0.00
7.89
12.99
-0.98
-2.81
766.26
-12.22
0.00
-26.56
0.00
1.97
-2.29
0.00
28.50
1.62
0.00
0.00
8.17
13.44
1.45
-0.06
790.92
-12.65
0.00
-15.77
0.00
0.08
-4.01
0.00
16.92
1.65
700.00
0.00
8.46
13.92
-0.12
0.75
1526.20
-11.22
0.00
-14.11
0.00
-1.58
0.55
0.00
15.14
1.68
50.00
0.00
7.50
12.34
2.35
2.36
901.84
-11.56
0.00
-20.47
0.00
-0.49
-2.48
0.00
21.97
1.72
-750.00
0.00
7.73
12.72
1.80
1.85
125.77
-11.90
0.00
-15.31
0.00
-0.50
-2.80
0.00
16.43
1.75
0.00
0.00
7.96
13.10
0.81
0.69
900.19
Cash Flows From Investing Activities
Property, plant and equipment – net
Other intangible assets – net
Other assets
Total Cash Flows from Investing Activities
-161.89
16.47
-13.93
-159.35
-104.33
11.53
-15.71
-108.51
-150.35
8.07
-17.40
-159.68
-160.64
5.65
-19.27
-174.26
-141.59
3.95
-20.28
-157.91
-156.81
2.77
-22.35
-176.39
-160.54
1.94
-24.63
-183.23
Cash Flows From Financing Activities
Long-term debt
Deferred income taxes – noncurrent
Pension and other post-employment liabilities
Common Stock
Treasury stock – at cost
Accumulated other comprehensive loss / income
Dividends Paid
Total Cash Flows From Financing Activities
9.04
3.32
-6.62
0.93
-90.65
104.34
-323.71
-303.34
104.65
0.92
-6.29
0.93
-113.31
73.04
-340.19
-280.26
108.31
-0.92
-5.97
0.93
-141.64
51.13
-357.11
-345.28
112.11
0.07
-5.68
0.93
-177.05
35.79
-374.38
-408.21
99.45
0.37
-5.39
0.93
-221.31
25.05
-391.87
-492.77
102.44
0.96
-5.12
0.93
-276.64
17.54
-409.43
-569.33
105.51
0.38
-4.87
0.93
-345.80
12.28
-426.85
-658.42
Net increase / decrease in cash and cash equivalents
Cash, Beginning of Year
Cash, End of Year
329.89
1701.4
2031.29
377.49
2031.29
2408.78
285.96
2408.78
2694.74
943.73
2694.74
3638.47
251.16
3638.47
3889.62
-619.95
3889.62
3269.67
58.54
3269.67
3328.22
Cash
2031.29
2408.78
2694.74
3638.47
3889.62
3269.67
3328.22
Mead Johnson Nutrition Company
Common Size Income Statement
Fiscal Years Ending Dec. 31
Net sales
Cost of products sold
Gross profit
Operating expenses
Selling, general and administrative
Advertising and promotion
Research and development
Other income / expenses – net
Operating Income (EBIT)
Interest expense – net
Earnings before income taxes
Provision for income taxes
Minority interest expense-net of tax
Net earnings
Net earnings / loss attributable to noncontrolling interests
Net earnings attributable to shareholders
2013
2014
2015
2016E
2017E
2018E
2019E
2020E
2021E
2022E
100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
36.4% 38.6% 35.7% 34.4% 35.5% 36.5% 36.6% 36.5% 36.6% 36.6%
63.6% 61.4% 64.3% 65.6% 64.5% 63.5% 63.4% 63.5% 63.4% 63.4%
40.4% 39.0% 41.3% 40.4% 40.0% 39.5% 39.2% 39.2% 39.2% 39.2%
21.5% 22.2% 21.9% 20.2% 20.0% 19.8% 19.6% 19.6% 19.6% 19.6%
15.4% 14.5% 15.8% 16.6% 16.4% 16.2% 16.1% 16.1% 16.1% 16.1%
2.4%
2.6%
2.7%
2.6%
2.6%
2.6%
2.5%
2.5%
2.5%
2.5%
1.2% -0.3%
1.0%
1.0%
1.0%
1.0%
1.0%
1.0%
1.0%
1.0%
23.2% 22.4% 23.0% 25.2% 24.5% 24.0% 24.2% 24.3% 24.2% 24.2%
1.2%
1.4%
1.6%
3.4%
3.4%
3.4%
3.4%
3.4%
3.4%
3.4%
22.0% 21.0% 21.4% 21.8% 21.0% 20.5% 20.8% 20.8% 20.8% 20.8%
5.6%
4.5%
5.3%
5.4%
5.0%
4.9%
5.0%
5.1%
5.0%
5.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
16.4% 16.5% 16.1% 16.4% 16.0% 15.6% 15.9% 15.8% 15.8% 15.8%
-0.1% -0.2%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
16.3% 16.3% 16.1% 16.4% 15.9% 15.5% 15.8% 15.7% 15.7% 15.8%
Mead Johnson Nutrition Company
Common Size Balance Sheet
Fiscal Years Ending Dec. 31
2013
2014
2015
2016E
2019E
2020E
Property, plant and equipment – net
Goodwill
Other intangible assets – net
Deferred income taxes – net of valuation allowance
Other assets
Total assets
20.7%
4.7%
2.3%
0.9%
3.7%
82.7%
20.7%
3.7%
1.7%
3.4%
3.0%
85.4%
23.7% 25.5% 24.6% 24.7% 25.0% 24.8% 24.8% 24.9%
3.1%
3.1%
3.0%
2.9%
2.8%
2.8%
2.7%
2.6%
1.3%
1.0%
0.6%
0.4%
0.3%
0.2%
0.1%
0.1%
2.9%
3.0%
2.9%
2.8%
2.7%
2.6%
2.5%
2.4%
3.2%
3.6%
3.9%
4.2%
4.5%
4.8%
5.1%
5.5%
98.2% 109.7% 115.6% 120.5% 139.7% 142.6% 127.2% 126.6%
Short-term borrowings
Accounts payable
Dividends payable
Current portion of long-term debt
Note payable
Accrued expenses and other liabilities
Accrued expenses excluding related party payables-net
Related party payables-net
Accrued rebates and returns
Deferred income – current
Income taxes – payable and deferred
Deferred income taxes—current
U.S. and foreign income taxes payable
Related party debt and lease-current
Total current liabilities
0.0%
13.5%
1.6%
12.0%
0.0%
5.2%
0.0%
0.0%
7.5%
1.1%
1.3%
0.0%
0.0%
0.0%
42.4%
0.1%
11.6%
1.7%
0.0%
0.0%
4.6%
0.0%
0.0%
7.5%
0.8%
1.0%
0.0%
0.0%
0.0%
27.3%
0.1%
11.8%
1.9%
0.0%
0.0%
5.2%
0.0%
0.0%
9.3%
0.9%
1.6%
0.0%
0.0%
0.0%
30.8%
0.0%
24.0%
0.4%
3.9%
3.7%
0.0%
0.0%
74.4%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
33.9% 73.2% 74.6% 74.6% 74.6% 74.6% 74.6% 74.6% 74.6%
0.3%
0.2%
0.3%
0.3%
0.3%
0.3%
0.3%
0.3%
0.3%
4.8%
3.3%
3.1%
2.9%
2.6%
2.4%
2.2%
2.1%
1.9%
4.4%
5.3%
5.4%
5.2%
5.0%
4.8%
4.7%
4.6%
4.4%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
70.6% 112.8% 115.8% 114.7% 114.4% 129.7% 129.9% 113.3% 113.0%
BMS investment
Common Stock / APIC
Retained earnings
Treasury stock – at cost
Accumulated other comprehensive loss / income
Redeemable noncontrolling interest
Total shareholders’ equity / deficit
Noncontrolling interests
Total equity / deficit
0.0%
0.0%
34.1%
-8.4%
-1.6%
1.2%
8.1%
0.2%
8.3%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.1%
0.1%
0.1%
0.1%
0.1%
0.2%
0.2%
40.3% 15.7% 24.3% 31.2% 37.4% 43.5% 49.4% 55.0% 60.4%
-8.2% -8.9% -11.3% -13.7% -16.5% -19.9% -24.2% -29.3% -35.6%
-4.5% -8.5% -6.1% -4.1% -2.8% -1.9% -1.3% -0.9% -0.6%
1.5%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
14.5% -15.5% -7.1% -0.1%
5.1%
9.1% 11.8% 13.0% 12.8%
0.2%
1.0%
1.0%
1.0%
0.9%
0.9%
0.9%
0.8%
0.8%
14.7% -14.6% -6.1%
0.9%
6.0% 10.0% 12.7% 13.9% 13.6%
Total liabilities and equity / deficit
82.7%
85.4%
0.0%
13.3%
1.9%
0.0%
0.0%
5.6%
0.0%
0.0%
9.3%
0.9%
0.9%
0.0%
0.0%
0.0%
32.0%
0.0%
13.2%
1.9%
15.7%
0.0%
5.6%
0.0%
0.0%
9.3%
0.9%
0.9%
0.0%
0.0%
0.0%
47.6%
0.0%
13.2%
1.9%
16.4%
0.0%
5.6%
0.0%
0.0%
9.3%
0.9%
0.9%
0.0%
0.0%
0.0%
48.2%
69.3%
8.4%
0.0%
12.4%
0.0%
0.3%
1.5%
92.0%
2022E
41.8%
8.4%
0.0%
11.9%
0.0%
0.3%
1.5%
63.9%
0.0%
13.1%
2.0%
0.0%
0.0%
5.6%
0.0%
0.0%
9.3%
0.9%
0.9%
0.0%
0.0%
0.0%
31.8%
62.7% 81.8% 84.9%
8.4%
8.4%
8.4%
0.0%
0.0%
0.0%
12.4% 12.3% 12.3%
0.0%
0.0%
0.0%
0.3%
0.3%
0.3%
1.5%
1.6%
1.5%
85.4% 104.5% 107.5%
2021E
29.4%
8.8%
0.0%
12.6%
0.0%
0.2%
1.9%
52.9%
0.0%
13.5%
2.0%
0.0%
0.0%
5.6%
0.0%
0.0%
9.3%
1.0%
1.0%
0.0%
0.0%
0.0%
32.4%
58.0%
8.4%
0.0%
12.2%
0.0%
0.4%
1.5%
80.6%
2018E
25.0%
9.2%
0.0%
12.7%
1.8%
0.4%
1.4%
50.4%
Related party debt—noncurrent
Long-term debt
Deferred income taxes – noncurrent
Pension and other post-employment liabilities
Other liabilities – noncurrent
Deferred income-noncurrent
Other liabilities excluding deferred income-noncurrent
Total liabilities
50.7%
8.4%
0.0%
12.6%
0.0%
0.3%
1.5%
73.5%
2017E
Cash and cash equivalents
Receivables—net of allowances
Note receivable
Inventories
Deferred income taxes – net of valuation allowance
Income taxes receivable
Prepaid expenses and other assets
Total current assets
0.0%
13.3%
1.9%
0.0%
0.0%
5.6%
0.0%
0.0%
9.3%
0.9%
0.9%
0.0%
0.0%
0.0%
31.9%
68.5%
8.4%
0.0%
12.3%
0.0%
0.3%
1.5%
91.1%
0.0%
13.2%
1.8%
0.0%
0.0%
5.6%
0.0%
0.0%
9.3%
0.9%
0.9%
0.0%
0.0%
0.0%
31.8%
98.2% 109.7% 115.6% 120.5% 139.7% 142.6% 127.2% 126.6%
Mead Johnson Nutrition Company
Value Driver Estimation
Fiscal Years Ending Dec. 31
NOPLAT Computation
Marginal Tax Rate
Federal Statutory Tax Rate
State income taxes, net of federal benefit
Foreign rate differential
Marginal Tax Rate
2013
2014
2015
2016E
2017E
2018E
2019E
2020E
2021E
2022E
35.0%
0.1%
-2.8%
32.3%
35.0%
0.1%
-4.4%
30.7%
35.0%
0.5%
-4.2%
31.3%
35.0%
0.1%
-5.2%
29.9%
35.0%
0.1%
-5.1%
30.0%
35.0%
0.1%
-4.3%
30.8%
35.0%
0.1%
-4.6%
30.5%
35.0%
0.1%
-4.7%
30.4%
35.0%
0.1%
-4.8%
30.3%
35.0%
0.1%
-4.7%
30.4%
EBITA
Net Sales
-Cost of Sales
-Depreciation & Amortization
-Research & Development Expense
-Advertising and promotion
-Selling, general & administrative expense
Other income / expenses – net
+Implied Interest on Operating Leases
EBITA
4200.7
-1445.4
-83.1
-100.2
-645.1
-903.5
-48.5
5.6
980.5
4409.3
-1609.0
-91.6
-115.1
-638.7
-978.9
12.3
5.0
993.3
4071.3
-1356.2
-99.1
-108.4
-641.8
-890.6
-39.0
7.1
943.3
4010.2
-1275.3
-103.3
-105.3
-664.3
-810.1
-40.5
7.4
1019.0
4150.6
-1369.7
-105.1
-107.9
-680.7
-830.1
-41.5
7.8
1023.4
4295.9
-1460.6
-109.3
-110.3
-695.7
-848.4
-42.4
8.2
1037.3
4446.2
-1511.7
-114.1
-113.3
-714.6
-871.5
-43.6
8.6
1086.1
4579.6
-1557.1
-116.6
-116.7
-736.0
-897.6
-44.9
9.0
1119.7
4717.0
-1603.8
-120.4
-120.2
-758.1
-924.5
-46.2
9.5
1153.3
4858.5
-1651.9
-124.1
-123.8
-780.9
-952.3
-47.6
10.0
1187.9
Less: Adjusted Taxes
Income tax provision (benefit)
-Tax Shield on Interest Income
+Tax Benefit on Interest Expense
+Tax Shield Other income (expense) net
+Tax Shield on Implied Interest
Total Adjusted Taxes
235.1
0
16.3
-16
1.8
237.6
199.2
0
18.5
4
1.5
223.0
215.9
0
20.3
-12
2.2
226.3
215.7
0
41.1
-12
2.2
247.0
209.6
0
42.7
-12
2.3
242.2
212.3
0
45.3
-13
2.5
247.1
220.2
0
46.4
-13
2.6
256.0
231.4
0
47.8
-14
2.7
268.3
237.3
0
49.0
-14
2.9
275.2
243.3
0
50.6
-14
3.0
282.5
Plus: Change in Deferred Tax Liabilities:
Net Change in DT Liabilities
-2.0
-41.4
28.6
3.3
0.9
-0.9
0.1
0.4
1.0
0.4
740.9
728.9
745.6
775.3
782.1
789.3
830.2
851.8
879.0
905.8
420.1
384.4
534.8
15.9
56.9
1412.1
440.9
387.8
555.5
7.7
82.6
1474.5
407.1
342.5
484.9
13.2
60.4
1308.1
401.0
337.4
505.0
13.1
58.9
1315.3
415.1
349.2
506.4
15.5
64.1
1350.2
429.6
361.4
533.0
13.6
66.4
1403.9
444.6
374.0
548.7
13.5
70.4
1451.2
458.0
385.3
562.8
15.1
69.8
1490.9
471.7
396.8
583.3
15.5
72.3
1539.7
485.8
408.7
598.6
16.0
75.1
1584.3
566.8
56.1
46.6
69.3
314.9
220.0
1273.7
512.3
45.2
34.3
76.6
329.1
203.7
1201.2
481.5
65.7
35.5
77.8
376.8
213.0
1250.3
541.9
41.6
39.8
79.4
371.1
225.6
1299.4
543.4
38.8
38.8
80.9
384.1
233.5
1319.6
571.9
38.8
40.3
82.6
397.6
241.6
1372.8
588.9
39.5
40.2
84.2
411.5
250.1
1414.3
604.0
41.9
42.5
85.9
423.8
257.6
1455.7
626.0
43.7
44.3
87.6
436.6
265.3
1503.5
642.4
44.4
45.1
89.4
449.7
273.3
1544.2
Net Operating Working Capital
138.4
273.3
57.8
15.9
30.6
31.1
36.9
35.2
36.2
40.1
Net PPE
867.5
912.7
964.0
1022.6
1021.9
1063.0
1109.5
1134.5
1170.9
1207.4
PV of Operating Leases
Intangible Assets, net
Other Assets
Net Other Operating Assets
121.1
97.5
157.2
375.8
108.9
75.4
142.5
326.8
153.8
54.9
142.5
351.2
161.5
38.4
142.5
342.5
169.6
26.9
142.5
339.0
178.1
18.8
142.5
339.4
187.0
13.2
142.5
342.7
196.3
9.2
142.5
348.1
206.2
6.5
142.5
355.1
216.5
4.5
142.5
363.5
0.0
0
0.0
0
0.0
0
0.0
0
0.0
0
0.0
0
0.0
0
0.0
0
0.0
0
0.0
0
NOPLAT
NOPLAT: EBITA - Adj. Taxes + Change in DT
Invested Capital Computation
Current Operating Assets
Normal Cash
Short-Term Receivables
Inventories
Income Taxes Receivable
Other Current Assets
Operating Current Assets
Less Current Operating Liablilities
Accounts Payable
Income Taxes Payable
Deferred Income
Dividends Payable
Accrued Rebates + Returns
Accrued Expenses
Operating Current Liabilities
Other Liabilities
Net Other Operating Liabilities
Invested Capital
1381.69 1512.85 1373.06 1380.99 1391.49 1433.48 1489.12 1517.79 1562.24 1610.95
Drivers
NOPLAT
/ Beginning Invested Capital
Return on Invested Capital (ROIC)
NOPLAT
-Change in Invested Capital
Free Cash Flow (FCF)
Beginning IC
x(ROIC-WACC)
Economic Profit (EP)
740.9
728.9
745.6
775.3
782.1
789.3
830.2
851.8
879.0
905.8
1175.67 1381.69 1512.85 1373.06 1380.99 1391.49 1433.48 1489.12 1517.79 1562.24
63.0%
52.8%
49.3%
56.5%
56.6%
56.7%
57.9%
57.2%
57.9%
58.0%
740.9
206.02
534.9
728.9
131.16
597.7
745.6
-139.79
885.4
775.3
7.93
767.4
782.1
10.50
771.6
789.3
41.99
747.3
830.2
55.63
774.6
851.8
28.67
823.2
879.0
44.45
834.6
905.8
48.71
857.1
1175.67 1381.69 1512.85 1373.06 1380.99 1391.49 1433.48 1489.12 1517.79 1562.24
56.7%
46.4%
43.0%
50.2%
50.3%
50.4%
51.6%
50.9%
51.6%
51.7%
666.7
641.7
650.2
688.7
695.0
701.5
739.8
757.9
783.3
807.2
Mead Johnson Nutrition Company
Weighted Average Cost of Capital (WACC) Estimation
Cost of Equity
Weight of Equity
Cost of Debt
Weight of Debt
WACC
6.98%
82.4%
3.16%
17.6%
6.31%
Cost of Debt
2044 Notes
Pre-tax Cost of Debt
4.60%
4.60%
Cost of Equity
Risk Free Rate
Beta: 2 year average (bloomberg)
Market Premium
Cost of Equity
2.58%
0.88
5.00%
6.98%
Equity Weight
Market Cap
$ 14,724.18
PV of Debt
$ 2,981.00
PV of Op Lease $
153.83
Mead Johnson Nutrition Company
Discounted Cash Flow (DCF) and Economic Profit (EP) Valuation Models
Key Inputs:
CV Growth
CV ROIC
WACC
Cost of Equity
3.00%
58%
6.31%
6.98%
2016E
2017E
2018E
2019E
2020E
2021E
2022E
DCF Model
NOPLAT
Begin IC
Ending IC
Change in Invested Capital
Free Cash Flow
ROIC
775.3
1373.1
1381.0
7.9
767.4
56.5%
782.1
1381.0
1391.5
10.5
771.6
56.6%
789.3
1391.5
1433.5
42.0
747.3
56.7%
830.2
1433.5
1489.1
55.6
774.6
57.9%
851.8
1489.1
1517.8
28.7
823.2
57.2%
879.0
1517.8
1562.2
44.4
834.6
57.9%
905.8
1562.2
1610.9
48.7
857.1
58.0%
767.4
771.6
747.3
774.6
823.2
834.6
721.9
682.8
622.0
606.4
606.2
578.1
857.1
25952.57
17978.3
775.3
1373.1
56%
688.7
782.1
1381.0
57%
695.0
789.3
1391.5
57%
701.5
830.2
1433.5
58%
739.8
851.8
1489.1
57%
757.9
879.0
1517.8
58%
783.3
647.8
615.0
583.9
579.2
558.1
542.6
Fiscal Years Ending Dec. 31
Free Cash Flow
Continuing Value
PV of FCF
Value of Operating Assets
+ Excess Cash
-Total Debt
-PV of Operating Leases
-PV of ESOP
-Minority Interest
Value of Equity
Shares Outstanding
Intrinsic Value (12/31/2015)
Price Today
$
EP Model
NOPLAT
Beginning IC
ROIC
Economic Profit
Continuing Value
PV of EP discounted by WACC
PV of EP
+Beginning IC
Value of Operating Assets
+Excess Cash
-Total Debt
-PV Operating Leases
-PV of ESOP
-Minority Interest
Value of Equity
Shares Outstanding
Intrincis Value of Stock
Price Today
$
21795.7
1294.3
-2981.0
-153.8
-665.1
-39.8
19250.3
186.5
103.22
104.43
20422.6
1373.1
21795.7
1294.3
-2981.0
-153.8
-665.1
-39.8
19250.3
186.5
103.22
104.43
905.8
1562.2
58%
807.2
24390
16896.1
Mead Johnson Nutrition Company
Dividend Discount Model (DDM) or Fundamental P/E Valuation Model
Fiscal Years Ending Dec. 31
EPS
2016E
$
Key Assumptions
EPS CV growth
CV ROE
Cost of Equity
2017E
2018E
2019E
2020E
2021E
2022E
1
2
3
4
5
6
7
3.51 $ 3.54 $ 3.57 $ 3.77 $ 3.87 $ 4.01 $ 4.17
4.00%
115.91%
6.98%
Future Cash Flows
P/E Multiple (CV Year)
EPS (CV Year)
Future Stock Price
Dividends Per Share
Future Cash Flows
22.74
4.17
1.73
1.73
1.62
93.44
Discounted Cash Flows
Intrinsic Value
$
93.44
Partial Year Adjustment
$
94.72
1.82
1.82
1.59
1.91
1.91
1.56
2.01
2.01
1.53
2.11
2.11
1.50
2.21
2.32
2.21 134.96
1.48 84.16
Mead Johnson Nutrition Company
Relative Valuation Models
Ticker
K
KHC
CAG
GIS
WWAV
SJM
GMCR
Company
Kellogg Co
Kraft-Heinz
Con Agra
General Mills
Whitewave Foods
JM Smucker Co
Keurig Green Mountain
MJN
Mead Johnson Nutrition Company
Implied Value:
Relative P/E (EPS15)
Relative P/E (EPS16)
Price
$75.09
$77.49
$42.76
$59.00
$40.30
$127.67
$91.95
EPS
2015E
$3.53
$2.19
$2.18
$2.92
$1.07
$4.31
$3.26
$84.31
$3.28
$ 89.95
$ 94.55
EPS
2016E
$2.14
$2.14
$2.14
$2.86
$1.36
$5.89
$3.68
Average
$3.51
P/E 15
21.3
35.4
19.6
20.2
37.7
29.6
28.2
27.4
P/E 16
35.2
36.3
20.0
20.6
29.6
21.7
25.0
26.9
Est. 5yr
EPS gr.
5.83%
18.23%
9.23%
5.35%
19.52%
13.78%
2.45%
10.63%
25.7
24.0
3.36%
Mead Johnson Nutrition Company
Key Management Ratios
Fiscal Years Ending Dec. 31
2013
2014
2015
2016E
2017E
2018E
2019E
2020E
2021E
2022E
Liquidity Ratios
Cash Ratio (Cash+ST)/Current L
Current Ratio
Quick Ratio ((Cash+a/r)/CL)
0.59
1.95
0.81
1.08
3.12
1.40
1.36
3.19
1.63
1.56
3.38
1.82
1.83
3.64
2.09
1.96
3.77
2.23
1.72
2.94
1.90
1.76
2.96
1.94
2.17
3.99
2.44
2.16
3.98
2.42
1.25
7.85
11.22
5.39
1.22
7.94
11.42
4.95
1.05
8.40
11.15
4.34
0.96
7.94
11.80
4.04
0.90
8.20
12.09
4.06
0.86
8.06
12.09
4.12
0.78
8.10
12.09
4.09
0.72
8.14
12.06
4.08
0.75
8.09
12.06
4.09
0.80
8.12
12.06
4.09
0.29
2.89
0.40
2.30
0.75
-5.04
0.68
-12.20
0.64
83.12
0.62
12.41
0.53
7.43
0.52
5.89
0.59
5.37
0.59
5.48
19.27
16.39
14.40
7.35
7.13
6.98
7.07
7.07
7.07
7.07
20.31% 19.89%
16.84% 15.64%
14.39% 13.39% 12.35% 11.31% 11.85%
329.15% 143.96% n/a
n/a
n/a
452.04% 199.55% 140.43% 120.39%
23.21% 22.41%
23.00% 25.22%
24.47% 23.96% 24.23% 24.25% 24.25%
65.59% 63.51%
66.69% 68.20%
67.00% 66.00% 66.00% 66.00% 66.00%
12.61%
116.47%
24.25%
66.00%
Activity or Asset-Management Ratios
Asset Turnover Ratio (sales/avg assets)
Inventory Turnover Ratio (sales/total inv)
Receivables Turnover (sales/avg rec)
Fixed Asset Turnover (sales/avg PPE)
Financial Leverage Ratios
Debt Ratio (total debt/total assets)
Debt/Equity Ratio (total debt/total equity)
Interest Coverage Ratio (operating
income/interest expense)
Profitability Ratios
ROA (NI/Avg Assets)
ROE (NI/Avg Equity)
EBIT Margin (EBIT/Sales)
Gross Margin (Rev-COGS)/Rev
Payout Policy Ratios
Payout Ratio (Div+repurchases)/NI
Dividend Payout Ratio (Div/EPS)
40.36%
40.36%
42.25%
42.25%
50.30%
50.30%
49.31%
49.31%
51.40%
51.40%
53.49%
53.49%
53.26% 54.41% 55.13% 55.74%
53.26% 54.41% 55.13% 55.74%
Present Value of Operating Lease Obligations (2015)
Present Value of Operating Lease Obligations (2014)
Operating
Leases
33.1
30.1
25.7
19.7
15
61.4
185
31
154
Fiscal Years Ending Dec. 31
2016
2017
2018
2019
2020
Thereafter
Total Minimum Payments
Less: Interest
PV of Minimum Payments
Capitalization of Operating Leases
Pre-Tax Cost of Debt
Number Years Implied by Year 6 Payment
Year
1
2
3
4
5
6 & beyond
PV of Minimum Payments
Lease
Commitment
33.1
30.1
25.7
19.7
15
15
Present Value of Operating Lease Obligations (2013)
Operating
Leases
35
26.1
21
16.6
10.8
14.2
123.7
15
109
Fiscal Years Ending Dec. 31
2015
2016
2017
2018
2019
Thereafter
Total Minimum Payments
Less: Interest
PV of Minimum Payments
Capitalization of Operating Leases
4.60%
4.1
PV Lease
Payment
31.6
27.5
22.5
16.5
12.0
43.8
153.8
Pre-Tax Cost of Debt
Number Years Implied by Year 6 Payment
Year
1
2
3
4
5
6 & beyond
PV of Minimum Payments
Lease
Commitment
35
26.1
21
16.6
10.8
10.8
Present Value of Operating Lease Obligations (2012)
Operating
Leases
36.4
29.5
20.8
15.5
14.3
22.3
138.8
18
121
Fiscal Years Ending
2014
2015
2016
2017
2018
Thereafter
Total Minimum Payments
Less: Interest
PV of Minimum Payments
Capitalization of Operating Leases
4.60%
1.3
PV Lease
Payment
33.5
23.9
18.3
13.9
8.6
10.8
108.9
Pre-Tax Cost of Debt
Number Years Implied by Year 6 Payment
Year
1
2
3
4
5
6 & beyond
PV of Minimum Payments
Lease
Commitment
36.4
29.5
20.8
15.5
14.3
14.3
Operating
Leases
38.5
29.6
23.3
18.3
14.3
33.8
157.8
24
134
Fiscal Years Ending
2013
2014
2015
2016
2017
Thereafter
Total Minimum Payments
Less: Interest
PV of Minimum Payments
Capitalization of Operating Leases
4.60%
1.6
PV Lease
Payment
34.8
27.0
18.2
12.9
11.4
16.8
121.1
Pre-Tax Cost of Debt
Number Years Implied by Year 6 Payment
Year
1
2
3
4
5
6 & beyond
PV of Minimum Payments
Lease
Commitment
38.5
29.6
23.3
18.3
14.3
14.3
6.00%
2.4
PV Lease
Payment
36.8
27.1
20.4
15.3
11.4
22.9
133.8
Effects of ESOP Exercise and Share Repurchases on Common Stock Balance Sheet Account and Number of Shares Outstanding
Number of Options Outstanding (shares):
Average Time to Maturity (years):
Expected Annual Number of Options Exercised:
Current Average Strike Price:
Cost of Equity:
Current Stock Price:
Increase in Shares Outstanding:
Average Strike Price:
Increase in Common Stock Account:
Change in Treasury Stock
Expected Price of Repurchased Shares:
Number of Shares Repurchased:
Shares Outstanding (beginning of the year)
Plus: Shares Issued Through ESOP
Less: Shares Repurchased in Treasury
Shares Outstanding (end of the year)
10
7.14
1
$
65.56
6.98%
$84.31
2016E
2017E
2018E
2019E
2020E
2021E
2022E
$
1
65.56 $
93
1
65.56 $
93
1
65.56 $
93
1
65.56 $
93
1
65.56 $
93
1
65.56 $
93
1
65.56
93
$
-91
84.31 $
(1)
-113
90.19 $
(1)
-142
96.49 $
(1)
-177
103.23 $
(2)
-221
110.43 $
(2)
-277
118.14 $
(2)
-346
126.38
(3)
187
1
(1)
187
187
1
(1)
187
187
1
(1)
187
187
1
(2)
187
187
1
(2)
186
186
1
(2)
185
185
1
(3)
184
VALUATION OF OPTIONS GRANTED IN ESOP
Ticker Symbol
Current Stock Price
Risk Free Rate
Current Dividend Yield
Annualized St. Dev. of Stock Returns
Range of
Outstanding Options
Range 1
Range 2
Range 3
Range 4
Range 5
Range 6
Total
Number
of Shares
1,902,000
1,959,000
1,724,000
1,783,000
1,010,000
1,767,000
10 $
MJN
$84.31
1.50%
2.64%
30.71%
Average
Average
Exercise Remaining
Price
Life (yrs)
52.11
7.70 $
60.12
7.40 $
67.01
7.30 $
75.73
7.00 $
63.53
5.80 $
75.54
7.00 $
65.56
7.14 $
B-S
Option
Price
52.11
60.12
67.01
75.73
63.53
75.54
36.97
$
$
$
$
$
$
$
Value
of Options
Granted
99,113,220
117,775,080
115,525,240
135,026,590
64,165,300
133,479,180
665.08
Sensitivity Analysis
$
CV Growth
$
Beta
$
$
$
$
$
$
$
$
$
0.75
87.10
91.69
96.88
109.65
117.62
127.02
138.29
152.03
169.17
$
$
$
$
$
$
$
$
$
0.8
82.45
86.55
91.17
102.39
109.30
117.37
126.92
138.40
152.45
$
$
$
$
$
$
$
$
$
0.85
78.21
81.90
86.02
95.94
101.98
108.97
117.15
126.86
138.56
104.43
0.75
0.8
0.85
0.88
0.9
0.95
1
1.05
1.1
1.15
1.2
$
$
$
$
$
$
$
$
$
$
$
3.50%
197.07
181.89
168.76
161.70
157.29
147.18
138.22
130.20
122.99
116.48
110.56
$
$
$
$
$
$
$
$
$
$
$
4.00%
167.03
154.27
143.21
137.25
133.53
124.98
117.37
110.56
104.43
98.88
93.84
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2.08%
201.37
165.66
140.18
121.07
106.21
94.32
84.59
76.49
$
$
$
$
$
$
$
$
$
$
2.08%
88.55
93.38
98.88
105.19
112.50
121.07
131.26
143.57
158.75
177.94
$
104.43
3.50%
4.00%
4.50%
5.00%
5.50%
6.00%
6.50%
7.00%
$
$
$
$
$
$
$
$
1.83%
228.85
184.33
153.68
131.29
114.22
100.77
89.89
80.92
$
104.43
1.75%
2.00%
2.25%
2.50%
2.75%
3.00%
3.25%
3.50%
3.75%
4.00%
$
$
$
$
$
$
$
$
$
$
1.83%
93.89
99.35
105.59
112.82
121.27
131.29
143.37
158.20
176.86
201.02
Market Premium
CV Growth
104.43
1.50%
1.75%
2.00%
2.50%
2.75%
3.00%
3.25%
3.50%
3.75%
Beta
0.9
74.33
77.65
81.35
90.17
95.49
101.59
108.66
116.96
126.83
0.95
$ 70.76
$ 73.77
$ 77.10
$ 84.98
$ 89.69
$ 95.05
$ 101.22
$ 108.38
$ 116.79
1
$ 67.47
$ 70.20
$ 73.21
$ 80.29
$ 84.48
$ 89.23
$ 94.64
$ 100.87
$ 108.11
4.50%
144.52
133.53
123.98
118.83
115.60
108.19
101.59
95.67
90.34
85.51
81.11
Market Risk Premium
5.00%
5.50%
$ 127.02 $ 113.03
$ 117.37 $ 104.43
$ 108.97 $ 96.94
$ 104.43 $ 92.88
$ 101.59 $ 90.34
$ 95.05 $ 84.49
$ 89.23 $ 79.27
$ 83.99 $ 74.59
$ 79.27 $ 70.35
$ 74.99 $ 66.51
$ 71.09 $ 63.01
6.00%
$ 101.59
$ 93.84
$ 87.07
$ 83.40
$ 81.11
$ 75.82
$ 71.09
$ 66.85
$ 63.01
$ 59.52
$ 56.34
$
$
$
$
$
$
$
$
$
$
$
6.50%
92.06
85.00
78.83
75.49
73.39
68.56
64.25
60.36
56.85
53.66
50.75
$
$
$
$
$
$
$
$
2.33%
179.50
150.23
128.70
112.20
99.15
88.57
79.82
72.46
Risk Free
2.58%
$ 161.70
$ 137.25
$ 118.83
$ 104.43
$ 92.88
$ 83.40
$ 75.49
$ 68.77
$
$
$
$
$
$
$
$
3.33%
123.78
108.35
96.05
86.02
77.69
70.65
64.62
59.41
$
$
$
$
$
$
$
$
$
$
2.33%
83.71
88.02
92.89
98.43
104.80
112.20
120.89
131.26
143.82
159.37
Risk Free
2.58%
$ 79.30
$ 83.16
$ 87.50
$ 92.40
$ 98.00
$ 104.43
$ 111.92
$ 120.75
$ 131.29
$ 144.12
$
$
$
$
$
$
$
$
$
0.88
75.85
79.30
83.16
92.40
98.00
104.43
111.92
120.75
131.29
$
$
$
$
$
$
$
$
$
1.05
$ 64.43
$ 66.91
$ 69.65
$ 76.03
$ 79.78
$ 83.99
$ 88.77
$ 94.23
$ 100.53
$
$
$
$
$
$
$
$
$
$
$
7.00%
83.99
77.51
71.84
68.77
66.85
62.40
58.43
54.86
51.62
48.68
46.00
$
$
$
$
$
$
$
$
3.58%
114.56
101.04
90.12
81.11
73.55
67.12
61.57
56.75
CV COGS
CV COGS
$
$
$
$
$
$
$
$
2.83%
146.91
126.20
110.24
97.58
87.28
78.74
71.54
65.39
3.08%
134.44
116.66
102.71
91.48
82.24
74.51
67.94
62.28
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2.83%
75.28
78.75
82.63
86.99
91.93
97.58
104.08
111.67
120.63
131.37
3.08%
$ 71.59
$ 74.73
$ 78.21
$ 82.11
$ 86.50
$ 91.48
$ 97.18
$ 103.76
$ 111.44
$ 120.54
3.33%
$ 68.20
$ 71.04
$ 74.18
$ 77.68
$ 81.60
$ 86.02
$ 91.04
$ 96.79
$ 103.45
$ 111.24
3.58%
$ 65.06
$ 67.65
$ 70.49
$ 73.65
$ 77.17
$ 81.11
$ 85.55
$ 90.61
$ 96.42
$ 103.16
CV Operating Expenses
$ 104.43
32.00%
32.25%
32.50%
32.75%
33.00%
33.25%
33.50%
33.75%
34.00%
34.25%
34.50%
34.75%
35.00%
35.25%
35.50%
35.75%
36.00%
0.7
$ 150.67
$ 149.11
$ 147.55
$ 146.00
$ 144.44
$ 142.89
$ 141.33
$ 139.77
$ 138.22
$ 136.66
$ 135.10
$ 133.55
$ 131.99
$ 130.43
$ 128.88
$ 127.32
$ 125.76
0.75
$ 138.51
$ 137.07
$ 135.64
$ 134.20
$ 132.77
$ 131.33
$ 129.89
$ 128.46
$ 127.02
$ 125.58
$ 124.15
$ 122.71
$ 121.28
$ 119.84
$ 118.40
$ 116.97
$ 115.53
0.8
$ 128.03
$ 126.70
$ 125.37
$ 124.04
$ 122.70
$ 121.37
$ 120.04
$ 118.71
$ 117.37
$ 116.04
$ 114.71
$ 113.37
$ 112.04
$ 110.71
$ 109.38
$ 108.04
$ 106.71
$ 104.43
32.00%
32.25%
32.50%
32.75%
33.00%
33.25%
33.50%
33.75%
34.00%
34.25%
34.50%
34.75%
35.00%
35.25%
35.50%
35.75%
36.00%
40.86%
3.50%
$ 176.17
$ 174.36
$ 172.55
$ 170.74
$ 168.93
$ 167.12
$ 165.32
$ 163.51
$ 161.70
$ 159.89
$ 158.08
$ 156.27
$ 154.46
$ 152.65
$ 150.85
$ 149.04
$ 147.23
$ 112.03
4.00%
$ 149.62
$ 148.08
$ 146.53
$ 144.99
$ 143.44
$ 141.89
$ 140.35
$ 138.80
$ 137.25
$ 135.71
$ 134.16
$ 132.62
$ 131.07
$ 129.52
$ 127.98
$ 126.43
$ 124.89
$ 94.80
4.50%
$ 129.61
$ 128.26
$ 126.92
$ 125.57
$ 124.22
$ 122.87
$ 121.52
$ 120.17
$ 118.83
$ 117.48
$ 116.13
$ 114.78
$ 113.43
$ 112.08
$ 110.74
$ 109.39
$ 108.04
$ 81.80
$ 104.43
37.95%
38.20%
38.45%
38.70%
38.95%
39.20%
39.45%
39.70%
39.95%
40.20%
40.45%
40.70%
40.95%
33.00%
$ 114.94
$ 113.79
$ 112.64
$ 111.50
$ 110.35
$ 109.21
$ 108.06
$ 106.92
$ 105.77
$ 104.63
$ 103.48
$ 102.34
$ 101.19
33.25%
$ 113.74
$ 112.60
$ 111.45
$ 110.31
$ 109.16
$ 108.01
$ 106.87
$ 105.72
$ 104.58
$ 103.43
$ 102.29
$ 101.14
$ 100.00
33.50%
$ 112.55
$ 111.40
$ 110.26
$ 109.11
$ 107.97
$ 106.82
$ 105.68
$ 104.53
$ 103.38
$ 102.24
$ 101.09
$ 99.95
$ 98.80
0.85
$ 118.91
$ 117.67
$ 116.43
$ 115.18
$ 113.94
$ 112.70
$ 111.46
$ 110.21
$ 108.97
$ 107.73
$ 106.49
$ 105.24
$ 104.00
$ 102.76
$ 101.52
$ 100.27
$ 99.03
Beta
0.88
$ 113.98
$ 112.79
$ 111.60
$ 110.40
$ 109.21
$ 108.01
$ 106.82
$ 105.63
$ 104.43
$ 103.24
$ 102.05
$ 100.85
$ 99.66
$ 98.46
$ 97.27
$ 96.08
$ 94.88
Market Risk Premium
5.00%
5.50%
$ 113.98 $ 101.44
$ 112.79 $ 100.37
$ 111.60 $ 99.30
$ 110.40 $ 98.23
$ 109.21 $ 97.16
$ 108.01 $ 96.09
$ 106.82 $ 95.02
$ 105.63 $ 93.95
$ 104.43 $ 92.88
$ 103.24 $ 91.81
$ 102.05 $ 90.74
$ 100.85 $ 89.67
$ 99.66 $ 88.60
$ 98.46 $ 87.53
$ 97.27 $ 86.46
$ 96.08 $ 85.39
$ 94.88 $ 84.32
$ 71.65 $ 63.50
33.75%
$ 111.35
$ 110.21
$ 109.06
$ 107.92
$ 106.77
$ 105.63
$ 104.48
$ 103.34
$ 102.19
$ 101.05
$ 99.90
$ 98.76
$ 97.61
CV COGS
34.00%
$ 110.16
$ 109.01
$ 107.87
$ 106.72
$ 105.58
$ 104.43
$ 103.29
$ 102.14
$ 101.00
$ 99.85
$ 98.71
$ 97.56
$ 96.42
0.9
$ 110.90
$ 109.73
$ 108.57
$ 107.41
$ 106.24
$ 105.08
$ 103.92
$ 102.75
$ 101.59
$ 100.43
$ 99.26
$ 98.10
$ 96.94
$ 95.77
$ 94.61
$ 93.45
$ 92.28
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
6.00%
91.15
90.18
89.21
88.24
87.28
86.31
85.34
84.37
83.40
82.43
81.47
80.50
79.53
78.56
77.59
76.62
75.66
56.81
34.25%
$ 108.97
$ 107.82
$ 106.68
$ 105.53
$ 104.38
$ 103.24
$ 102.09
$ 100.95
$ 99.80
$ 98.66
$ 97.51
$ 96.37
$ 95.22
0.95
$ 103.80
$ 102.71
$ 101.61
$ 100.52
$ 99.43
$ 98.33
$ 97.24
$ 96.15
$ 95.05
$ 93.96
$ 92.87
$ 91.78
$ 90.68
$ 89.59
$ 88.50
$ 87.40
$ 86.31
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
1
97.47
96.44
95.41
94.38
93.35
92.32
91.29
90.26
89.23
88.19
87.16
86.13
85.10
84.07
83.04
82.01
80.98
6.50%
82.55
81.67
80.79
79.90
79.02
78.14
77.25
76.37
75.49
74.60
73.72
72.83
71.95
71.07
70.18
69.30
68.42
51.22
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
7.00%
75.27
74.46
73.64
72.83
72.02
71.21
70.40
69.58
68.77
67.96
67.15
66.34
65.53
64.71
63.90
63.09
62.28
46.48
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
34.50%
$ 107.77
$ 106.63
$ 105.48
$ 104.34
$ 103.19
$ 102.05
$ 100.90
$ 99.76
$ 98.61
$ 97.46
$ 96.32
$ 95.17
$ 94.03
34.75%
$ 106.58
$ 105.43
$ 104.29
$ 103.14
$ 102.00
$ 100.85
$ 99.71
$ 98.56
$ 97.42
$ 96.27
$ 95.13
$ 93.98
$ 92.83
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
1.05
91.79
90.82
89.84
88.87
87.89
86.92
85.94
84.97
83.99
83.02
82.05
81.07
80.10
79.12
78.15
77.17
76.20
35.00%
$ 105.38
$ 104.24
$ 103.09
$ 101.95
$ 100.80
$ 99.66
$ 98.51
$ 97.37
$ 96.22
$ 95.08
$ 93.93
$ 92.79
$ 91.64