By Jim Jubak

Mead Johnson Nutrition (MJN) on Thursday reported fourth-quarter earnings of 52 cents a share, a penny above Wall Street estimates, and revenue of $911.3 million, above the Wall Street consensus of $894.04 million.

On the news, the stock closed up at $74.01. That $74 a share was the price I set for an exit in the aftermath of the death of a baby in Missouri that had consumed the company's Enfamil baby formula from a Cronobacter infection. 

To me, the stock is now a sell.

The important issues here are valuation and timing. (The shares are a member of my Jubak's Picks 12-to-18 month portfolio.)

The stock trades at a rather hefty 26.5 times trailing 12-month earnings. That's pricey, in my opinion, given the pressure in the first half of 2012 on operating margins from the added cost of marketing to reassure the company's customers. 

(Both the Centers for Disease Control and the Food and Drug Administration concluded that there was no evidence of Cronobacter contamination during the manufacture or shipping of Mead Johnson's formula.) 

In addition, dairy raw-materials costs are likely to climb by 30% in the first half of 2012, Credit Suisse estimates, before sliding back in the second half. Gross margins will slip to 61.5% in the first quarter, Credit Suisse calculates, before recovering to 63% in the third quarter. 

In its guidance for investors and analysts, Mead Johnson said that it expects sales-growth rates in China and Hong Kong to be lower in 2012 than in 2011. The company increased market share in those areas in 2011, and expects to do so again in 2012, but at a lower rate. 

For all of 2012, the company lowered its earnings per share guidance to $3 to $3.10. That's below the current $3.17 a share Wall Street consensus.

I think all this adds up to a tough first half of the year for the stock. I'm selling the shares today, with a 5.2% gain since I added them to the portfolio on November 23, 2011. (But I certainly wouldn't mind picking up shares for cheaper in the second half.)

Full disclosure: I don't own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund, may or may not now own positions in any stock mentioned in this post. The fund did own shares of Mead Johnson Nutrition as of the end of September. For a full list of the stocks in the fund as of the end of September, see the fund's portfolio here.