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Summary

  • Three insiders have sold Mead Johnson Nutrition stock within one month.
  • The stock was not purchased by any insiders in the month of intensive selling.
  • Two of these three insiders decreased their holdings by more than 10%.

Mead Johnson Nutrition Company (NYSE:MJN) manufactures, distributes, and sells infant formulas, children'’s nutrition, and other nutritional products.

(click to enlarge)

Insider selling during the last 30 days

Here is a table of Mead Johnson Nutrition's insider activity during the last 30 days.

Name Title Trade Date Shares Sold Rule 10b5-1 Current Ownership Decrease In Ownership
Stephen Golsby Director April 15 10,000 Yes 93,964 shares 9.6%
Charles Urbain SVP April 1 11,298 Yes 48,941 shares 18.8%
William P'Pool SVP April 1 8,405 Yes 20,492 shares 29.1%

There have been 29,703 shares sold by insiders during the last 30 days. All these shares were sold pursuant to a Rule 10b5-1 plan.

SEC Rule 10b5-1 is a regulation enacted by the United States Securities and Exchange Commission (SEC) in 2000. The SEC states that Rule 10b5-1 was enacted in order to resolve an unsettled issue over the definition of insider trading, which is prohibited by SEC Rule 10b-5. After Rule 10b5-1 was enacted, the SEC staff publicly took the position that canceling a planned trade made under the safe harbor does not constitute insider trading, even if the person was aware of the inside information when canceling the trade. This staff interpretation raises the possibility that executives can exploit this safe harbor by entering into 10b5-1 trading plans before they have inside information while retaining the option to later cancel those plans based on inside information.

For example, a CEO of a company could call a broker on January 1 and enter into a plan to sell a particular quantity of shares of his company's stock on March 1, find out terrible news about his company on February 1 that will not become public until April 1, and then go forward with the March 1 sale anyway, saving himself from losing money when the bad news becomes public. Under the terms of Rule 10b5-1(b) this is insider trading because the CEO "was aware" of the inside information when he made the trade. But he can assert an affirmative defense under Rule 10b5-1(c), because he planned the trade before he learned the inside information.

In general, it is a safer way for an insider to sell shares pursuant to a Rule 10b5-1 trading plan than without it.

Insider selling by calendar month

Here is a table of Mead Johnson Nutrition's insider activity by calendar month.

Month Insider selling / shares Insider buying / shares
April 2014 29,703 0
March 2014 114,452 0
February 2014 41,267 0
January 2014 10,000 0
December 2013 10,000 0
November 2013 10,000 0
October 2013 10,000 500
September 2013 10,525 0
August 2013 10,000 10,000
July 2013 10,000 0
June 2013 10,000 0
May 2013 22,510 0
April 2013 10,000 3,511
March 2013 10,000 0
February 2013 10,000 0
January 2013 10,000 0

There have been 328,457 shares sold, and there have been 14,011 shares purchased by insiders since January 2013. The month of March 2014 has seen the most insider selling.

Financials

Mead Johnson Nutrition reported the full-year 2013 financial results on January 31 with the following highlights:

Revenue $4.2 billion
Net income $649.5 million
Cash $1.1 billion
Debt $1.5 billion

The three insiders sold their shares after these results.

Outlook

Mead Johnson Nutrition's 2014 guidance is as follows:

Constant dollar sales growth ~7%
GAAP EPS $3.44-$3.56

Competition

Mead Johnson Nutrition's competitors include Abbott Laboratories (NYSE:ABT), Danone (OTCQX:DANOY), and Nestlé S.A. (OTCPK:NSRGY). Here is a table comparing these companies.

Company MJN ABT DANOY NSRGY
Market Cap: 16.80B 58.74B 43.02B 240.94B
Employees: 7,200 69,000 104,642 333,000
Qtrly Rev Growth (yoy): 0.08 0.00 -0.02 0.00
Revenue: 4.20B 21.85B 27.57B 98.97B
Gross Margin: 0.64 0.54 0.52 N/A
EBITDA: 1.09B 4.44B 4.46B 18.55B
Operating Margin: 0.24 0.12 0.13 0.16
Net Income: 649.50M 2.36B 1.84B 10.73B
EPS: 3.19 1.62 0.63 3.35
P/E: 26.12 23.44 23.41 22.53
PEG (5 yr expected): 2.17 1.49 22.48 5.68
P/S: 3.95 2.68 1.57 2.45

Mead Johnson Nutrition has the highest P/S ratio among these four companies.

Here is a table of these competitors' insider activities this year.

Company Insider buying / shares Insider selling / shares
ABT 0 107,586
DANOY N/A N/A
NSRGY N/A N/A

Only Mead Johnson Nutrition has seen intensive insider selling during the last 30 days.

Conclusion

There have been three different insiders selling Mead Johnson Nutrition, and there have not been any insiders buying Mead Johnson Nutrition during the last 30 days. Two of these three insiders decreased their holdings by more than 10%. Mead Johnson Nutrition has an insider ownership of 0.24%.

Before going short Mead Johnson Nutrition, I would like to get a bearish confirmation from the Point & Figure chart. The two main reasons for the proposed short entry are a relatively high P/S ratio, and the intensive insider-selling activity.

Source: Mead Johnson Nutrition: 3 Different Insiders Have Sold Shares This Month