On Tuesday, DA Davidson adjusted its outlook on Medifast (NYSE: NYSE:MED) shares, a weight management and health products company, by reducing its price target to $16.50, a decrease from the previous $17.50. The firm maintained its Underperform rating on the stock.
Medifast's second quarter of 2024 results revealed a sales shortfall, although the company surpassed profit expectations. However, the third-quarter sales forecast was set below market anticipations, with the projected earnings per share (EPS) encompassing the consensus estimate.
In response to these developments, DA Davidson revised its sales projections downward for the second half of 2024, leaving EBITDA estimates unchanged. The firm also adjusted its sales and EPS estimates for 2025, with the EPS forecast significantly reduced to $0.50 from the earlier $1.60 projection.
The revised price target of $16.50 is based on a valuation of 3 times the estimated 2025 EPS of $0.50, plus the company's cash and investment holdings valued at $15 per share.
DA Davidson's analysis suggests caution, noting several factors that might impede Medifast's growth. These factors include a sequential decline in new customer acquisition and a low percentage of coaches—only 17%—being trained on GLP-1 drugs, which are used for weight management.
Additionally, the full range of GLP-1 support products is not expected to be available until the end of the year, which could potentially affect sales. The firm's stance reflects concerns about Medifast's near-term performance and market position, as indicated by the revised sales and earnings projections and the lowered price target.
In other recent news, Medifast Inc. experienced a downgrade in its stock rating at DA Davidson, following a revision of the company's revenue projections.
The firm shifted its stance on Medifast's stock from 'Neutral' to 'Underperform' and reduced the price target to $17.50 from the previous $25.00.
This decision came after a meeting with Medifast, which led to an expectation of a sequential flattening to occur in the first quarter of 2025, resulting in a decrease of the company's estimated sales for 2025 by 5% year-over-year and a 29% cut in the estimated earnings per share (EPS).
Additionally, Medifast's advertising campaign for its GLP-1 offering, initially anticipated to start in June, has been delayed to July, contributing to the firm's cautious outlook.
The company's current marketing and advertising spending is between 5% and 6% of its sales, notably lower than that of competitors in the weight loss and telehealth sectors.
The new price target of $17.50 is based on an 11 times multiple of the projected 2025 EPS of $1.60. With the updated financial forecasts and the competitive landscape in mind, DA Davidson's revised rating and price target reflect recent developments and a cautious view of Medifast's future stock performance.
InvestingPro Insights
As Medifast navigates its current financial landscape, recent data from InvestingPro provides additional context for investors. The company boasts a strong gross profit margin of 73.15% for the last twelve months as of Q1 2024, highlighting its efficiency in controlling the cost of goods sold relative to its revenue. Additionally, Medifast's valuation suggests a robust free cash flow yield, a metric that many investors watch closely as it can indicate the company's ability to generate cash and sustain or grow operations. Despite recent price declines, with the stock falling significantly over the past year, the company's P/E ratio stands at an attractive 3.37, suggesting that it may be undervalued compared to earnings.
For those looking to delve deeper into Medifast's financial health, InvestingPro offers an array of additional insights. Currently, there are 13 more InvestingPro Tips available for Medifast, which can be accessed at InvestingPro Medifast for investors seeking a comprehensive analysis. These tips could provide valuable guidance for making informed investment decisions in light of the company's current and projected financial performance.
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