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Analysts React To Weight Watcher's Q2 Earnings

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Analysts React To Weight Watcher's Q2 Earnings
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Weight Watchers International, Inc. (NYSE: WTW) reported an earnings beat in its second-quarter results, which may have been overshadowed by a slowdown in subscriber growth. Here's a summary of how some Street analysts reacted to the report.

The Analysts

  • D.A. Davidson's Linda Bolton Weiser maintains a Buy rating on Weight Watchers with an unchanged $143 price target.
  • KeyBanc Capital Markets' Edward Yruma maintains at Overweight, unchanged $115 price target.
  • B. Riley FBR's Kara Anderson maintains at Buy, price target lifted from $103 to $113.

Shares of Weight Watchers were trading lower by 12 percent at $80.90 at time of publication.

Encouraging Takeaways

Weight Watchers reported a revenue miss in the quarter, but multiple other metrics support a bullish stance on the stock, Bolton Weiser said in a note. These include:

  • 27.6 percent growth in subscribers to 4.5 million versus expectations of 4.4 million;
  • 21 percent of subscribers opted for the six month plan compared to 14 percent last year; and
  • Average retention reached a new all-time high;

Related Link: Weight Watchers CEO Talks Earnings, Celeb Collaborations After Q2 Print

Strong Tailwind Ahead

The "solid" earnings report is highlighted by the growth in online subscribers, which resulted in a 430 basis point expansion in margins, Yruma said in a note. Encouragingly, a 32-percent year-over-year increase in marketing expenses flowed to the top-line strength and the momentum seen in the quarter should be sustainable.

The company expects to end 2018 with 25 percent more subscribers than 2017 and this alone could result in a 50-cent per share tailwind for 2019 EPS due to the impressive nature of the subscription model, the analyst said. The company is likely to see incremental upside from improved retention, a rewards and loyalty program and ongoing investments in brand-building initiatives.

Weight Watchers continues to stand out within the weight loss space due to the simplicity of its app along with a database of 200 zero-point foods. This is evident in the greater number of people signing up for a six month plan compared to the same quarter a year ago and 1.3 million unique members syncing their app to a fitness device.

Progress Towards Wellness Brand

Exiting Weight Watchers' report, it's evident the company continues to progress towards a "holistic wellness brand" that offers its 4.5 million subscribers "freedom and livability," Anderson said in a note. At the same time, the company is succeeding in another transition of becoming more of a leading technology company.

Management comments it won't be running TV commercials in the fall season is encouraging as it reinforces the strength of its digital marketing, the analyst said. A focus on advertising in the right space is key to achieve a longer-term $2 billion revenue target by 2020.

Photo credit: Mike Mozart, Flickr

Latest Ratings for WTW

DateFirmActionFromTo
Oct 2018Bank of AmericaMaintainsBuyBuy
Sep 2018Morgan StanleyInitiates Coverage OnEqual-Weight
Sep 2018Goldman SachsInitiates Coverage OnNeutral

View More Analyst Ratings for WTW
View the Latest Analyst Ratings

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