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This may the happiest time of year for gift hunters and holiday music lovers, but for Weight Watchers (WTW), Christmas comes a bit later: When the New Year ushers in a wave of post-holiday resolutions. So with January 1 fast approaching, let’s revisit Weight Watchers and see if it will continue to tighten its belt next year.
Company Overview
In 1963, a Brooklyn homemaker named Jean Nidetch devised a system that would help women manage their weight by eating smarter and gathering support from others. Just about 50 years later, Weight Watchers has grown into one of the world’s most recognized weight management services, with operations in over 30 countries.
In addition to holding traditional face-to-face meetings with other members, the company has also branched out to offer online-only services where members can track their habits and their progress. This company brings in over $1.8 billion in annual sales and employs 27,000 globally.
Industry Breakdown
There are 34 companies in the Personal Services Industry. Of those, Weight Watchers is a key player-with the seventh-largest market cap. This company also stands out in terms of dividend yield, which is the third highest in the industry.
However, this is an otherwise middle-of-the-road competitor: The company’s sales growth comes in at no. 26 while earnings growth is at no. 13. This company’s main competitor is Nutrisystem (NTRI). When you plug both companies into Portfolio Grader, NTRI emerges as the better buy. NTRI is an A-rated buy due to superior buying pressure, stronger sales growth, operating margin growth, earnings momentum and return on equity.
Earnings Buzz
The consensus is that the fourth quarter should be a slim one for Weight Watchers; the company is headed towards a 11.6% year-on-year drop in sales and a 37% plunge in earnings. The fact is that Weight Watchers now has to compete with a slew of new free calorie tracking apps and activity monitors like MyFitnessPal. The company has also suffered from member attrition as consumers found the program confusing. So the company is expected to see sales and profits decline through at least the end of next year.
Current Ratings
Before you buy any stock, you should always run it through my free Portfolio Grader ratings system. Around the beginning of 2013, this stock steadily plummeted to a D-rating and hasn’t budged much since. The primary reason is a drop-off in institutional buying pressure, but there’s also weakness on the company’s balance sheet as well.
Weight Watchers has been struggling in terms of sales growth (F), earnings growth (D) and earnings momentum (D). Meanwhile, Weight Watchers does outperform the competition in terms of earnings surprises, analyst earnings revisions and cash flow (all A-rated). Overall, WTW receives a C for its Fundamental Grade and an F for its Quantitative Grade.
Bottom Line: As of this posting I consider WTW a D-rated sell.
Sound Off: What do you think about WTW? Are you a buyer at current prices? Let me know what you think by posting on our wall on Facebook. For more stock grades and commentary, please visit NavellierGrowth.com!
