NutriSystem: Maybe Next Year?
- Price: $13.50
- Forward P/E:12.7
- Earnings Growth:-40%
- Projected Sales Growth:-10%
- Market Cap:$368 million
Why It's Featured: 2012 should bring better results; high returns on equity and assets.
Danger Zones: Slow economic recovery.
Nutrisystem, Inc. (NASDAQ: NTRI) provides weight management products and services primarily in the United States and Canada. The company's program principally consists of pre-packaged food, online tools, and counseling. It offers weight-loss programs based on nutritious, portion-controlled, and lower Glycemic Index prepared meals.
The company also provides monthly food packages, a 28-day supply of breakfasts, lunches, dinners, and desserts, which supplement its customers with fresh dairy, fruit, salad, vegetables, and low-glycemic carbohydrate items.
Its weight management programs include Nutrisystem D, a low glycemic regimen for those with type 2 diabetes and a need to lose weight; Nutrisystem Jumpstart, a program for men and women to accelerate their way to a healthier lifestyle; and Nutrisystem Flex, a 28-day program consisting of 20 days of food. The company also offers Nutrisystem J Diet, a 14-day program consisting of 2 meals per day and beverages, in Japan.
Nutrisystem, Inc. sells pre-packaged foods directly through the Internet and telephone, as well as through QVC, a television shopping network. The company was founded in 1972 and is based in Horsham, Pennsylvania.
Times are lean for NTRI. Competition's tough, and the economy is tougher. Sales are on the decline ($509.5 million in 2010 vs $687.7 million in 2008). This year, look for $455 million with the anticipation of an uptick in 2012 to $480 million. New customers aren't signing up as quickly as old ones drop. New marketing ideas aren't working with the exception of the Rollback effort. It's the one that cuts prices on the company's most favored food to 2003 levels.
That last "success" story will cost. Margins will be narrower. Profits will be lower. While earnings hit $1.13 in 2010, 4 analysts have a consensus estimate of 60 cents a share for this year, then project $1.07 for 2012. For the second and third quarters they see 28 cents vs 32 cents and 16 cents compared to 25 cents.
Management's cutting costs. First, by reducing employee headcount. In the first quarter, severance expenses were 6 cents a share. Expect more of less in the general and administrative side as fewer are needed in those departments.
If the economy can get traction and really heal, 2012 could be the year of a very positive turnaround for NTRI. When discretionary spending improves, part of it goes to diet programs. Also helping will be the above mentioned cost cuts. They'll continue to widen margins and improve earnings. How strong can earnings get at NTRI? In 2007, they hit an all-time high of $2.98 a share and the stock traded at $76.30 the year before in anticipation of record results.
Another reason for optimism: there's a national effort to live a healthier lifestyle, part of which is eating better. Between the first lady and all those exercise machine commercials, there isn't anyone unaware of the dangers of obesity and the problems it can create, ones like diabetes and heart disease. This healthy trend has just begun and should grow. NTRI is there to help.
Two other aspects of this stock make it worth consideration: a strong dividend and balance sheet. There is little debt ($30 million). That gives management plenty of opportunity to try new marketing ideas and develop new products. The pay out is 70 cents a share for a yield of 5%. With earnings coming in below that, there's a chance that the dividend is in danger, but the company only started paying them 3 years ago. Most companies are loathe to cut distributions. But if earnings weaken further, there is a possibility of a dividend reduction.
Essential numbers:
- Trailing P/E is 16.38.
- Price to sales ratio is .81.
- Price to book is 4.81.
- Book value is $2.87.
- Operating margin in the last 12 months was 8.13% while Profit margin was 5.15%.
- Return on equity was a notable 24.17% and Return on assets was 14.33%.
- Total cash is $65.55 million for $2.43 a share.
- Debt to equity is 38.74%.
- Current ratio is 3.22.
- Beta is .41.
- In the last year, the stock is down 28%.
- There are 26.97 million shares Outstanding with a Float of 25.86 million.
- Insiders own 4.68% of the stock and Institutions have 98.80% of the Float.
This stock is most suitable for patient Aggressive investors who want income. Sort of an oxymoron, but the fact is that NTRI most likely won't move much until good earnings begin to show. That won't happen until next year, if at all. But if the stock appeals and it's added to a portfolio, the 5% yield will pay for patience.
- Company Web site: www.nutrisystem.com
- Ted Allrich
August 4, 2011
Ted is the Chairman of the Board of B of I Holding and Bank of Internet USA. He is also the founder of The Online Investor (www.theonlineinvestor.com) which has a Free Newsletter for investors.
