posted robust second-quarter 2012 results, including earnings per share that improved 14.6% year over year to clinch a 27% positive surprise.
Subsequently, shares of this manufacturer and provider of weight-loss products attained a new 52-week high of $27.34 on July 30 and became a Zacks #1 Rank (Strong Buy) on July 28.
Fabulous Quarter, Upbeat Guidance
On July 26, Medifast reported second quarter earnings of 47 cents per share, topping the Zacks Consensus Estimate of 37 cents and increasing from 41 cents in the prior-year quarter. The improvement was made possible by strategic initiatives from management to contain costs and enhance operational efficiencies across sales channels.
Net sales of $93.6 million comfortably surpassed the Zacks Consensus Estimate of $89 million, and grew 20% year over year, mirroring sales increases across Take Shape for Life (up 13%), Medifast Direct (up 17%), and Medifast Weight Control Center and Wholesale Physicians (up 59%). Operating margin expanded 200 basis points sequentially to 8.9%.
Management now expects third quarter sales between $88 million and $91 million, reflecting year-over-year growth of 16% to 20%. Earnings are projected between 37 cents and 40 cents per share.
Earnings Momentum on the Rise
Over the past 7 days, the Zacks Consensus Estimate for 2012 rose 4.9% to $1.29 per share on the back of upward revisions from 2 of 5 estimates. For 2013, three of 5 estimates were revised higher over the same timeframe, eventually driving the Zacks Consensus Estimate up by 7.9% to $1.63 per share.
Valuation Reflects Fundamental Strength
Medifast currently trades at a forward P/E of 20.7x, reflecting an 8.1% premium to the peer group average of 19.2x. Also, on a price-to-book basis, shares trade at 5.2x, a substantial premium to the peer group average of 1.3x. Given the companys compelling fundamentals, the premium valuation is justified and well supported by its long-term estimated EPS growth rate of 17.5%.
With respect to return on equity (ROE), the stock looks very attractive. It has a trailing 12-month ROE of 23.2%, which is above its peer group average of 12%. This implies that the company reinvests its earnings more efficiently than its peers.
Chart Echoing Strength
Shares of Medifast had been trading in the range of approximately $15.00 to $21.00 since the beginning of the year. It broke that range on July 27, when shares soared 26.5% on stronger-than-anticipated second quarter results and moved closer to its 52-week high. The stock has been consistently trading above its 200-day moving average since March 23, 2012. It has also remained above the 50-day moving average since June 12, 2012.
Volume is fairly strong, averaging roughly 229K daily. Medifast, which competes with Herbalife Ltd. (HLF) and Weight Watchers International Inc. (WTW), has outperformed the S&P 500 since the beginning of 2012. The year-to-date return for the stock is 79.2% compared with the S&P 500s return of 8.5%.
Founded in 1980 and headquartered in Owings Mills, Maryland, Medifast manufactures, distributes, and sells weight management and disease management products, and other health related and diet products in the U.S. The company has a current market cap of $415 million.