Stocks grinded higher this week as an extremely light tape helped deliver a Santa Claus rally. We also note that the S&P 500 is now officially positive for the year...albeit barely so. Something is better than nothing as they say.
Stocks of Note: Baby formula maker Mead Johnson Nutrition (MJN) saw its shares get whacked almost 15% this week on news that an infant child had died from a bacterial infection called Cronobacter. The child reportedly had been fed MJN's Enfamil in the days prior to death.
The company has asserted that the product batch in question tested negative for the bacteria at the time of manufacture. Further, the contamination could have also come from the local water supply or many other environmental sources. The FDA is investigating and retailers have been pulling the product off their shelves until results of the testing are announced.
We like the company, its management team and the markets they serve. MJN also has a good safety record and it is our belief the quality control standards and product testing protocols are rigidly enforced.
It doesn't take much to spook investors these days and especially here in the US, intense media attention to such tragedies tends to foment the paranoia of the American consumer's psyche. Thus, a sell-off would be expected.
However, unless MJN management is setting themselves up for disaster (i.e. making false claims that product testing is accurate), then we view this sell-off in MJN shares as somewhat overdone. Barring any direct link to Enfamil and the child's death, we expect MJN shares to recover some ground in the coming weeks.
Caveats: On the flip-side, there will likely be analyst downgrades and eps revisions coming down the pike as analysts re-jigger the impact of potential fall-out to brand equity and near-term concerns about inventory. Although there has been no formal "recall" of Enfamil yet, we could expect days-sales-outstanding to get stretched out until the pulled product returns to the shelves and gets sold.
Worse case scenario: If tests do reveal that the Enfamil batch contained the bacterium, then short-sellers and lawyers will have a field day.
The Merriam Report wishes you a Happy Holiday!
Stocks of Note: Baby formula maker Mead Johnson Nutrition (MJN) saw its shares get whacked almost 15% this week on news that an infant child had died from a bacterial infection called Cronobacter. The child reportedly had been fed MJN's Enfamil in the days prior to death.
The company has asserted that the product batch in question tested negative for the bacteria at the time of manufacture. Further, the contamination could have also come from the local water supply or many other environmental sources. The FDA is investigating and retailers have been pulling the product off their shelves until results of the testing are announced.
We like the company, its management team and the markets they serve. MJN also has a good safety record and it is our belief the quality control standards and product testing protocols are rigidly enforced.
It doesn't take much to spook investors these days and especially here in the US, intense media attention to such tragedies tends to foment the paranoia of the American consumer's psyche. Thus, a sell-off would be expected.
However, unless MJN management is setting themselves up for disaster (i.e. making false claims that product testing is accurate), then we view this sell-off in MJN shares as somewhat overdone. Barring any direct link to Enfamil and the child's death, we expect MJN shares to recover some ground in the coming weeks.
Caveats: On the flip-side, there will likely be analyst downgrades and eps revisions coming down the pike as analysts re-jigger the impact of potential fall-out to brand equity and near-term concerns about inventory. Although there has been no formal "recall" of Enfamil yet, we could expect days-sales-outstanding to get stretched out until the pulled product returns to the shelves and gets sold.
Worse case scenario: If tests do reveal that the Enfamil batch contained the bacterium, then short-sellers and lawyers will have a field day.
The Merriam Report wishes you a Happy Holiday!
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