The document provides an analysis of Mead Johnson Nutrition Company (MJN) recommending selling the stock. The top three reasons are: 1) MJN's valuation is unjustifiable given lack of true competitors for comparison; 2) rising inflation in emerging markets will negatively impact MJN's fastest growing segment; 3) MJN faces declining markets in the US including losing government contracts and falling birth rates. The recommendation is to swap MJN for Coca-Cola to gain exposure to emerging markets with less commodity cost pressure.

1. Penn State Investment AssociationConsumer Staples Sector Mead Johnson Nutrition (MJN) Analysts: Mike Long, Diem Tran, Juan Castro

2. Team Recommendation: Sell Top Three Reasons to Sell: 2

4. Operate under brands; Enfamil, Enfalac, Enfapro, Lactum, ChocoMilk, and many more

5. Sell products through retailers such as; grocery stores, club stores, mass merchandisers, and convenience stores

6. Operate in 50 countries with 70% of revenue derived outside of the United States

7. Major competitors include: Abbot Labs, Nestle S.A., Danone and Pfizer3

8. Revenue Breakdown Geographic Breakdown Segment Breakdown 4

10. Potential acquisition already priced into the stock (estimated 30%-40% of stock price)

11. With the spin-off of Pfizer’s Wyeth Nutrition, MJN is no longer the only candidate in this industry to be taken over5

13. The People’s Republic of China have raised their one-year deposit rate 4 times in 6 months to 3.25% in attempt to fight rising inflation (CPI 5.3%)

14. India has raised interest rates 8 times totaling 200 bps over the last year  impact markets more significantly this year due to fiscal policy lag

15. Brazil raised their inflation forecast to 5.6% from 5.0% and cut their growth outlook to 4% from 4.5% for 2011

17. MJN anticipating 7% increase in COGS  not convinced they will be able to sustain these high margins from productivity savings alone especially if revenues don’t meet expectations6

19. Losing 4 contracts over the next 8 months equivalent to 7% of revenue from WIC (0.7% of total revenue)

20. Increased competition for these contracts may cause Mead Johnson to bid even less in order to win, resulting in even greater losses WIC program generated $3 million in losses in 2010 for MJN

21. Competition for these contracts is increasing because of belief in spillover effect

22. Contracts are managed at state level and with the budget constraints states are currently facing we are not confident they will continue to fund this program to the extent they have previously

23. Tough Economy for baby makin’…

24. U.S. birthrate down 4% in 1H10

25. Mgmt. does not believe the declining birth rates have bottomed and don’t expect a turnaround until 2H12  function of high unemployment and falling disposable income due to rising costs

26. MJN sees extended breastfeeding and earlier transitions to cow milk  also saw a push for breastfeeding from Mrs. Obama

27. Gained market share in 2010 due to Similac recall

28. Expected to be pressure in 2H11 as mothers return to Similac7

30. Coke Drivers:

31. 1.) Coke vs. Pepsi  We like Coke better than Pepsi because they are less exposed to commodity cost increases since they do not have a snacks segment

32. 2.) Emerging Markets  While we are concerned about rising inflation in emerging markets, we believe we need to have exposure to these markets since that is where the growth is coming from going forward. Coke will be a less risky play than MJN on this front

33. 3.) Product Innovation  Continually able to come out with new products that drive growth. Diet Coke just surpassed Pepsi as the No. 2 soda in the U.S. yesterday!

34. 4.) DCF PT $77  currently trading at $67 giving us about 15% upside8

35. 9 Comparable Analysis

36. 10 Comparable Analysis

37. 11 Ratio Analysis

38. 12 Five Year Summary

39. 13 Projections

40. 14 Trends & CAGRs

41. Discounted Cash Flow 15

43. More significantly, we would own a much larger portion of our benchmark from a weightings perspective  PG (1 @ 14%), PM (2 @ 10%), KO (4 @ 7.50%)

44. Costco is 11th biggest (3%) in our benchmark and McCormick is 31st

45. Geographic exposure would remain the same (roughly 70% outside U.S. for both companies)

46. Commodity costs impact MJN more since KO has the ability to take advantage of economies of scale much better16

47. Chart & News 1/27/11– MJN reported Q4 earnings beating on bottom line but missing on top line 3/14/11– Pfizer announced the spin-off of Wyeth Nutrition 17

48. Debt Distribution 18

49. Team Recommendation: Sell Top Three Reasons to Sell: 19

50. Questions or Comments?