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Bull of the Day: Weight Watchers (WTW)

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Weight Watchers International Inc. (WTW - Free Report) has managed to completely turn around its business over the last 2 years. This Zacks Rank #1 (Strong Buy) is now one of the industry leaders in weight loss and wellness.

Weight Watchers is a wellness company and operates weight management programs through its web site and meetings.

Another Beat in the Fourth Quarter

On Feb 27, Weight Watchers reported its fourth quarter 2017 results and beat the Zacks Consensus by 6 cents. Earnings were $0.37 versus the Zacks Consensus Estimate of $0.31.

This was the 6th earnings beat in a row.

Revenue rose 17% in the quarter to $312 million. For the full year, revenue gained 12% year-over-year to $1.3 billion.

It also continued to add subscribers at a quick pace. They rose 23% year-over-year in the fourth quarter to 3.2 million subscribers.

Total paid weeks also rose 19% in the quarter and were up 17% year-over-year for the full year.

The company said it saw a strong response to the launch of its WW Freestyle program in December 2017.

Strong Guidance for 2018

The company saw momentum heading into its peak diet season, which is always January of the new year due to New Year resolutions to lose weight and be healthier.

It gave revenue guidance up about 20% to $1.55 billion and earnings per share in the range of $2.40 to $2.70.

That is much more bullish than the Zacks Consensus.

As a result, the analysts have been raising 2018 estimates.

The Zacks Consensus jumped to $2.13 from $1.66 since the earnings report. That's earnings growth of 29% as the company made $1.66 in 2018.

But analysts are also more bullish on 2019 as well as the 2019 Zacks Consensus Estimate jumped to $2.59 from $1.92 in the last month as well. That's another 21.8%.

Quick Prep Kits Next?

As it moves away from reliance on its weight loss plan and meetings model, Weight Watchers is heading into the wellness market through several initiatives.

According to Bloomberg, Weight Watchers will sell quick prep meal kits in grocery stores soon. These kits are a very competitive space with companies like Blue Apron (APRN - Free Report) already offering them through home delivery.

Walmart (WMT - Free Report) recently announced it would be getting into this space as well and it seems likely that Amazon (AMZN - Free Report) , through Whole Foods, will be a challenger in the meal kit category as well.

Additionally, there are already plenty of grab and go meal companies like Snap Kitchen.

Weight Watchers, however, has a recognized brand and has already been in the food business for years with its snacks and packaged items based on the company's point based weight loss system.

Recipes and Kitchen Tools

Another area of growth for the company is the lifestyle area. It is already utilizing Instagram well to increase its connection with the audience.

According to Bloomberg, it is partnering with a celebrity chef who will develop recipes for the company's new Freestyle program. Recipes, cookbooks and exercise plans are a big part of the wellness industry.

Apparently, it will also start selling kitchen tools.

A quick Google search led me to this Freestyle Make It and Take It Kit for $69.88 at Walmart. It includes a 150 recipe cookbook.

Shares Soar But Is There Some Left in the Tank?

Over the last year, Weight Watchers has been one of the best performing stocks.



Shares are up 256% in that time period. Does anyone blame Oprah Winfrey for selling some of her stake?

But given that growth has returned, the shares don't look expensive for a growth stock. They currently trade with a forward P/E of 28.7.

There's a lot to like about the turnaround in Weight Watchers. If you're interested in the wellness industry, this is a stock to keep on your short list.

[In full disclosure, the author of this article owns shares of AMZN in her personal portfolio.]

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