Wedbush Sees Downside To Weight Watchers International, Inc. Stock Price

Kurt Frederick of Wedbush released a cautious note on Weight Watchers International, Inc. WTW. The analyst maintained a Neutral rating and $20 price target, meaningfully below Tuesday's closing price of $27.44.

"In recent years increased competition led to increased investment and marketing spend to obtain new members, negatively impacting margins," Frederick wrote in his note. "While we believe the company is poised to benefit from increased subsidies by employers for employee's memberships and the overall growth in the global population of overweight and obese individuals, near-term issues surrounding spending and revenue growth result in our Neutral rating."

Near-term trends include a reduction in opening hours and number of meetings, as well as low-volume centers closing, consistent with management's aggressive cost-cutting efforts. As such, Frederick noted that the company may see continued revenue declines throughout 2015.

To reverse declining trends, Weight Watchers will focus on flash sales, including Groupon-type deals. However, according to Frederick, this "may improve trends, but are unlikely to return the company to positive revenue growth in 2015."

"We believe the current share price level reflects 2015 membership stabilization and gradual performance improvement, which is not a foregone conclusion at this point," Frederick concluded. "Thus, at current levels we believe risk is to the downside."

Weight Watchers International, Inc. traded recently at $27.49.