Nowadays, you can’t turn on the radio or the television about hearing about some up-and-coming treatment or diet designed to help people shed extra pounds.
However, through all of this Weight Watchers (NYSE:WTW) has managed to remain a trusted name in what many consider to be a shifty business. Let’s take a look at this company and see how it fared after yesterday’s earnings announcement.
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 28,000 globally.
Industry Breakdown
There are 39 companies in the Personal Services Industry. Of those, Weight Watchers is a key player-with the third-largest market cap. This company also stands out in terms of long-term growth rate, which is the second highest in the industry. The company’s sales growth comes in at no. 5 while earnings growth is at no. 6.
Weight Watchers also boasts a modest 0.9% dividend yield which is the ninth best in the industry. This company’s main competitors are Nutrisystem (NASDAQ:NTRI) and Ediets.com (NASDAQ:DIET). Of these, Weight Watchers trounces the competition in terms of sales growth and operating margin, and also has a slightly higher gross margin.
Earnings Buzz
After the closing bell on Wednesday, Weight Watchers grabbed headlines—but not in a good way. Shares of WTW plunged 18% on the news that the company missed the consensus earnings estimate of 78 cents per share. Due to difficult year-over-year comparisons and execution issues, the company’s profits declined 26% to $54.6 million, or 74 cents per share.
Over the same period, sales climbed 0.5% to $503.5 million, but also missed the $505.7 million consensus sales estimate. According to management, the company’s global sales are helping to drive overall top-line growth in the face of weaker volumes in North America and in the UK.
Looking forward, the company has boosted its 2012 earnings outlook from a range of $4.20 to $4.60 per share to a range of $4.60 to $4.80 per share. Nonetheless, this still falls below the Street view of $4.96 per share.
Current Ratings
Before you buy any stock, you should always run it through my free Portfolio Grader ratings system. Over the past 12 months, this stock stayed in buy territory, but was downgraded to a hold three weeks ago. Although this company’s fundamantals are relatively solid, especially in terms of analyst earnings revisions, Weight Watchers doesn’t have a strong track record of beating earnings surprises or return on equity.
What really makes this stock a hold is a recent drop in buying pressure. Overall, this is a C-rated stock.
Bottom Line: I recommend that you hold off on buying shares of this stock until buying pressure for WTW firms up.
Recommendation: Hold
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.
