Weight Watchers Has Dropped 76% In 2015, But The Worst Might Be Over

In a report published Wednesday, Morgan Stanley analyst Dara Mohsenian upgraded the rating on Weight Watchers International, Inc. WTW to Equal-Weight, with a price target of $6, following the steep decline in the company’s shares.

Weight Watchers’ shares had plunged 76 percent year-to-date, as compared to a 2.1 percent rise in the S&P 500. The stock was now trading 5 percent below the price target. Analyst Dara Mohsenian commented that the stock’s valuation now “more appropriately” reflected the weak fundamental outlook.

Mohsenian pointed out that, while there were long term concerns, there were some near-term positives that could limit stock downside:

• The upcoming launch of a new program across the company’s main geographies could have a favorable impact on sentiment.
• An article in the New York Post in July mentioned that an activist hedge fund was in talks with potential partners about making a buyout offer for Artal Group, which owns about 51 percent of Weight Watchers.
• Liquidity issues appeared okay in the near term, with the company indicating that it could end this year with $250M in cash, which “provides a cushion” versus the debt of $144M due in April 2016.

“Longer term, we remain concerned that declining attendance trends are a secular issue with intense competition for weight loss from online programs/applications/activity monitors, as well as other weight-loss concepts.”