By Lisa Baertlein and Anna Yukhananov
(Reuters) - The crisis surrounding the manufacturer of the No. 1 baby formula in the United States mounted on Friday as a top investment bank warned that Enfamil sales could be hurt even if health regulators find no link between it and the death of an infant.
Goldman Sachs cut its financial targets for Enfamil manufacturer Mead Johnson Nutrition Co, and Standard & Poor's said it was assessing the impact of the investigation on the company, including whether it would have to be put on credit watch.
Shares of Mead Johnson fell nearly 7 percent, on top of a 10 percent drop on Thursday when news first emerged that Wal-Mart Stores Inc was pulling cans of Enfamil Newborn formula off its shelves following the death of 10-day-old Avery Cornett of Lebanon, Missouri.
The baby had been fed the formula and tested positive for Cronobacter, a bacteria that has sometimes been linked to rare illnesses in newborns. Cronobacter has been found in milk-based powdered baby formula, and is also a relatively common environmental contaminant.
A federal investigation is under way and so far no link has been found between Cornett's illness and the formula, which was purchased at a Wal-Mart store in Missouri. Test results from samples taken inside the Cornett home will not be available until next week, federal officials said.
"We see risk that consumers trust in the Enfamil brand is damaged, regardless of the outcome of any investigation," Goldman Sachs analyst Jason English said in a client note.
He lowered his estimates for Mead Johnson's earnings in 2012 through 2014 by 3 percent on average. In particular, he cut his 2012 earnings per share forecast to $3.17 from $3.27. He also trimmed that 2013 forecast by 10 cents to $3.50.
As a result of those lowered expectations, English cut his share price target for Mead Johnson to $74 from $80. The stock was down $4.75 at $64.01 in late trading on Friday.
Mead Johnson's "Enfa" family of products, which includes Enfamil, accounts for about 79 percent of total sales, according to Standard & Poor's. Mead Johnson reported $3.14 billion in sales in 2010.
The ratings agency retained its "triple-B" rating and "positive" outlook on Mead Johnson's debt, though it said the company could lose sales if consumers switch to another brand of baby formula while waiting for the results of the investigation.
Another baby, in Illinois, got sick from Cronobacter infection earlier this month, but later recovered. Regulators said that infant consumed a number of products and investigators are still looking into what caused the illness. It is unknown whether the baby also used Enfamil formula.
Abbott Laboratories - maker of Similac, the No. 2 U.S. formula brand - voluntarily recalled millions of containers of Similac powdered formula last year after beetles were found in the products and in a plant where they were made.
D.A. Davidson analyst Tim Ramey said it took about six months for Abbott's Similac business to recover. During that time, Enfamil sales rose.
"They're going to trade share back and forth," Ramey said. "If it turns out there's a problem, that will favor Abbott Labs." Shares of Abbott Labs edged 0.6 percent higher to $56.
Wal-Mart began taking 12.5-ounce cans of Enfamil Newborn from lot number ZP1K7G from shelves late Monday night. Other retailers who carried the same product - including Walgreen Co, Supervalu Inc, Safeway Inc and Kroger Co - followed suit.
Siobhan DeLancey, spokeswoman for the U.S. Food and Drug Administration (FDA), said the agency was analyzing samples of unopened baby formula containers from the infant's home, as well as from several retail stores, to see if other Enfamil lots had problems.
She said the Centers for Disease Control and Prevention (CDC) would test the open containers of formula, the water in the home, and the mixture of formula and water.
The results of the investigation could come as early as the middle of next week, DeLancey confirmed.
However, the CDC said DNA samples from the baby's strain of the infection will not be available until the end of next week, making it impossible to link the baby's illness to any kind of formula until then.
(Additional reporting by Brad Dorfman in Chicago; Editing by Richard Chang)