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Medifast (MED) Lags Industry in 3 Months: How to Play Ahead?
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Medifast, Inc. (MED - Free Report) is walking a tightrope, with its shares down a considerable 41.6% in the past three months, underperforming the industry’s decline of 2.9%. The weight loss, weight management and healthy living products company has also trailed the Zacks Consumer Staples and the S&P 500’s respective growth of 4.1% and 12.2% in the same time frame.
Image Source: Zacks Investment Research
Finishing the last trading session at $18.63, the stock stands perilously close to its 52-week low of $17.89 and 83% below its 52-week high of $109.52. This Baltimore, MD-based company’s stock has also slipped below critical technical thresholds, such as its 50-day and 200-day moving averages, which are important indicators for gauging market trends and momentum.
Image Source: Zacks Investment Research
These aspects raise investor concerns regarding MED’s ability to navigate current market dynamics. The company has been battling persistent customer acquisition challenges exacerbated by macroeconomic factors and the rising popularity of GLP-1 medications. Additionally, increased marketing and advertising initiatives and investments to drive customer acquisition are likely to put pressure on profits in 2024.
Factors Making Things Sour for MED
Medifast has been facing challenges in attracting customers, primarily because of a range of macroeconomic elements, such as the increasing popularity of GLP-1 medications, the rapidly changing economy and shifts in social media algorithms. Undoubtedly, the weight loss market has experienced significant changes over the past 18 months, with the adoption of medically supported weight loss accelerating more rapidly than anticipated.
In the first quarter of 2024, net revenues of $174.7 million declined 49.9% year over year, mainly due to a fall in active earning OPTAVIA Coaches and reduced productivity per active earning OPTAVIA Coach. Average revenue per active earning OPTAVIA Coach was $4,623, down 22.2% from $5,945 due to lower customer acquisition stemming from the rising popularity of weight loss medicines. The total number of active earning OPTAVIA Coaches fell 35.6% to 37,800 compared with 58,700 in the year-ago quarter.
Unimpressively, the quarterly gross profit came in at $127.3 million, down 48.3% year over year on reduced revenues. Management expects revenues in the range of $150-$170 million for the second quarter of 2024 compared with the $296.2 million reported in the second quarter of 2023. The revenue outlook reflects continued near-term pressure on customer acquisition stemming from the growth of GLP-1 medications in markets.
Apart from this, Medifast has been battling rising SG&A costs for a while, which is denting its profits. As a percentage of revenues, SG&A expenses increased 1,300 bps to 68.3% in the first quarter of 2024. This was primarily attributed to market research and investment costs related to medically supported weight loss activities, reduced leverage on fixed costs resulting from decreased sales volumes, as well as costs associated with company-led acquisition initiatives. On an adjusted basis, SG&A expenses as a percentage of sales expanded 1,220 bps to 67.5%.
As the operating landscape remains difficult, Medifast intends to make significant spending to boost customer acquisition. The company plans to invest roughly $30 million in advertising and other marketing initiatives to enhance the visibility and customer engagement around the OPTAVIA brand and its offerings. This elevated level of spending is anticipated to continue into 2025. However, these investments in customer acquisition initiatives, coupled with the negative impact of lower volumes on operating leverage, are expected to continue putting pressure on profitability for the remainder of 2024.
The company projects earnings per share (EPS) in the band of 5-40 cents for the second quarter of 2024. The EPS guidance excludes costs associated with the initiation of a partnership with LifeMD, as well as any gains or losses related to changes in the market price of the company’s LifeMD investment. In the second quarter of 2023, earnings came in at $2.77 per share.
Analyst Sentiment Plummets
The Zacks Consensus Estimate for the second quarter has slumped from $2.52 to 36 cents, while for 2024 it has declined from $2.80 to 94 cents over the past 60 days. This significant downward adjustment reflects a negative sentiment among analysts and suggests potential challenges in achieving projected profitability.
Image Source: Zacks Investment Research
What’s Ahead?
Medifast has been proactively implementing a series of measures to propel its growth trajectory. A primary focus has been accelerating its long-term supply-chain capabilities to smartly manage the anticipated surge in growth over the next few years. This involves a strategic emphasis on optimizing and expanding capacity, achieved through fortifying its network of co-manufacturers. Additionally, Medifast is committed to technological and infrastructural investments.
Medifast is also advancing various initiatives to broaden its presence in the expansive health and wellness market. The company has regularly adapted to shifting consumer behavior to maintain its relevance. To this end, management is on track to transform itself into a diversified health and wellness company. Medifast is foraying into medically supported weight management and sports nutrition segments to keep pace with the market dynamics and battle the customer acquisition hurdles.
However, it remains to be seen how long these efforts will take to help Medifast fully overcome the boulders on its path. Given the recent stock performance and analyst sentiments, the company appears to be a risky bet at present. Medifast currently carries a Zacks Rank #5 (Strong Sell).
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BRF (BRFS - Free Report) , which engages in raising, producing and slaughtering poultry and pork for processing, production and sale of fresh meat, processed products, pasta, margarine, pet food and other products, currently sports Zacks Rank #1.
The Zacks Consensus Estimate for BRF’s current financial-year sales and earnings suggests growth of 7.5% and 210%, respectively, from year-ago reported figures.
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Medifast (MED) Lags Industry in 3 Months: How to Play Ahead?
Medifast, Inc. (MED - Free Report) is walking a tightrope, with its shares down a considerable 41.6% in the past three months, underperforming the industry’s decline of 2.9%. The weight loss, weight management and healthy living products company has also trailed the Zacks Consumer Staples and the S&P 500’s respective growth of 4.1% and 12.2% in the same time frame.
Image Source: Zacks Investment Research
Finishing the last trading session at $18.63, the stock stands perilously close to its 52-week low of $17.89 and 83% below its 52-week high of $109.52. This Baltimore, MD-based company’s stock has also slipped below critical technical thresholds, such as its 50-day and 200-day moving averages, which are important indicators for gauging market trends and momentum.
Image Source: Zacks Investment Research
These aspects raise investor concerns regarding MED’s ability to navigate current market dynamics. The company has been battling persistent customer acquisition challenges exacerbated by macroeconomic factors and the rising popularity of GLP-1 medications. Additionally, increased marketing and advertising initiatives and investments to drive customer acquisition are likely to put pressure on profits in 2024.
Factors Making Things Sour for MED
Medifast has been facing challenges in attracting customers, primarily because of a range of macroeconomic elements, such as the increasing popularity of GLP-1 medications, the rapidly changing economy and shifts in social media algorithms. Undoubtedly, the weight loss market has experienced significant changes over the past 18 months, with the adoption of medically supported weight loss accelerating more rapidly than anticipated.
In the first quarter of 2024, net revenues of $174.7 million declined 49.9% year over year, mainly due to a fall in active earning OPTAVIA Coaches and reduced productivity per active earning OPTAVIA Coach. Average revenue per active earning OPTAVIA Coach was $4,623, down 22.2% from $5,945 due to lower customer acquisition stemming from the rising popularity of weight loss medicines. The total number of active earning OPTAVIA Coaches fell 35.6% to 37,800 compared with 58,700 in the year-ago quarter.
Unimpressively, the quarterly gross profit came in at $127.3 million, down 48.3% year over year on reduced revenues. Management expects revenues in the range of $150-$170 million for the second quarter of 2024 compared with the $296.2 million reported in the second quarter of 2023. The revenue outlook reflects continued near-term pressure on customer acquisition stemming from the growth of GLP-1 medications in markets.
Apart from this, Medifast has been battling rising SG&A costs for a while, which is denting its profits. As a percentage of revenues, SG&A expenses increased 1,300 bps to 68.3% in the first quarter of 2024. This was primarily attributed to market research and investment costs related to medically supported weight loss activities, reduced leverage on fixed costs resulting from decreased sales volumes, as well as costs associated with company-led acquisition initiatives. On an adjusted basis, SG&A expenses as a percentage of sales expanded 1,220 bps to 67.5%.
As the operating landscape remains difficult, Medifast intends to make significant spending to boost customer acquisition. The company plans to invest roughly $30 million in advertising and other marketing initiatives to enhance the visibility and customer engagement around the OPTAVIA brand and its offerings. This elevated level of spending is anticipated to continue into 2025. However, these investments in customer acquisition initiatives, coupled with the negative impact of lower volumes on operating leverage, are expected to continue putting pressure on profitability for the remainder of 2024.
The company projects earnings per share (EPS) in the band of 5-40 cents for the second quarter of 2024. The EPS guidance excludes costs associated with the initiation of a partnership with LifeMD, as well as any gains or losses related to changes in the market price of the company’s LifeMD investment. In the second quarter of 2023, earnings came in at $2.77 per share.
Analyst Sentiment Plummets
The Zacks Consensus Estimate for the second quarter has slumped from $2.52 to 36 cents, while for 2024 it has declined from $2.80 to 94 cents over the past 60 days. This significant downward adjustment reflects a negative sentiment among analysts and suggests potential challenges in achieving projected profitability.
Image Source: Zacks Investment Research
What’s Ahead?
Medifast has been proactively implementing a series of measures to propel its growth trajectory. A primary focus has been accelerating its long-term supply-chain capabilities to smartly manage the anticipated surge in growth over the next few years. This involves a strategic emphasis on optimizing and expanding capacity, achieved through fortifying its network of co-manufacturers. Additionally, Medifast is committed to technological and infrastructural investments.
Medifast is also advancing various initiatives to broaden its presence in the expansive health and wellness market. The company has regularly adapted to shifting consumer behavior to maintain its relevance. To this end, management is on track to transform itself into a diversified health and wellness company. Medifast is foraying into medically supported weight management and sports nutrition segments to keep pace with the market dynamics and battle the customer acquisition hurdles.
However, it remains to be seen how long these efforts will take to help Medifast fully overcome the boulders on its path. Given the recent stock performance and analyst sentiments, the company appears to be a risky bet at present. Medifast currently carries a Zacks Rank #5 (Strong Sell).
Key Staple Picks
Freshpet, Inc. (FRPT - Free Report) , a pet food company, has a trailing four-quarter earnings surprise of 118.2%, on average. FRPT currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Freshpet’s current financial-year sales and earnings indicates growth of 24.8% and 177.1%, respectively, from the prior-year reported level.
BRF (BRFS - Free Report) , which engages in raising, producing and slaughtering poultry and pork for processing, production and sale of fresh meat, processed products, pasta, margarine, pet food and other products, currently sports Zacks Rank #1.
The Zacks Consensus Estimate for BRF’s current financial-year sales and earnings suggests growth of 7.5% and 210%, respectively, from year-ago reported figures.
Treehouse Foods (THS - Free Report) is a manufacturer of packaged foods and beverages. The company currently has a Zacks Rank #2 (Buy).
The Zacks Consensus Estimate for Treehouse Foods’ current financial-year sales and earnings indicates a decline of 1.6% and 8.5%, respectively, from the prior-year reported level. THS has a negative trailing four-quarter average earnings surprise of 4.5%.