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Bull of the Day: Medifast (MED)

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Yesterday’s Bear of the Day detailed some of the difficulties at Weight Watchers (WTW - Free Report) , highlighted by a disappointing recent quarterly report.

Today’s Bull of the Day is the other side of that coin.

Weight loss-competitor Medifast (MED - Free Report) just released a sensational quarterly report, increased guidance and has seen enough upward revisions lately to earn a Zacks #1 Rank (Strong Buy).

In an indication of changing consumer preferences, Medifast is attracting new subscribers to a comprehensive health and wellness program that focuses on creating sustainable lifestyle and nutritional changes into their lifestyles - rather than a temporary diet.

Quite a few customers of other weight loss programs have unfortunately found that the results are not permanent and that they quickly fall back into old habits.

Medifast’s flagship brand and product line, OPTAVIA, is sold exclusively through a network of franchised clinics, medical clinics and the company’s own community of independent coaches who market their services in a multi-level marketing structure.

With over 20,000 doctor recommendation and a sales structure that incentivizes ongoing purchases, Medifast has created a positive feedback loop in which satisfied customers become brand ambassadors.

Plans for 2019 include an expansion to Asia-Pacific markets.

In the fourth quarter, Medifast earned $1.30/share, well above the Zacks Consensus Estimate of $1.19/share. Revenues also came in higher than expected at $145.8M versus $142.1M. Full year 2018 earnings were $4.62/share, more than doubling 2017’s net of $2.29/share.

For 2019, the company issued guidance of $6.45 – 6.65/share in earnings and revenues of $700-720M, further increases of 30% and 40%, respectively. Medifast carries Growth and Momentum style scores of “A”

As you can see from the Price, Consensus and Surprise chart below, Medifast shares appreciated rapidly during the first three quarters of 2018, gaining almost 275% before giving up half of the gains by the end of the year.

In 2019, MED is back on a stable upward trajectory, thanks in part to the fact that at current prices, a recent dividend increase has the stock yielding 2.3% annually – which is very solid income for a stock that also has robust growth potential.

$101M of cash and cash equivalents on the balance sheet should give investors confidence that Medifast is in a position to continue paying the increased dividend.

The weight loss industry will still be pulling in revenues as long as people want to improve their appearance and health, but methods and programs fall in and out of favor. Right now, Medifast is in the driver’s seat with a popular set of options for customers and a corporate sales structure that rewards investors handsomely.

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