A month has gone by since the last earnings report for Medifast (MED Quick QuoteMED - Free Report) . Shares have lost about 2.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Medifast due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Medifast Q4 Earnings & Sales Beat Estimates

Medifast delivered fourth-quarter 2022 results, wherein the top and bottom lines beat the Zacks Consensus Estimate and the latter increased year over year.

However, results were somewhat hurt by reduced Coach productivity and cost inflation. Also, the company’s revenues and earnings per share (EPS) guidance for the first quarter of 2023 indicate a decline from the year-ago period. Shares of the company tumbled 9.2% in the after-market trading session on Feb 21.

Quarterly Highlights

Medifast’s adjusted earnings rallied 27.1% to $3.70 per share in the fourth quarter, which surpassed the Zacks Consensus Estimate of $2.18.

Net revenues of $337.2 million beat the Zacks Consensus Estimate of $306.7 million, but declined 10.7% year over year due to reduced Coach productivity. The total number of active earning OPTAVIA Coaches rose 1.8% year over year to 60,900. The average revenue per active earning OPTAVIA Coach was $5,538 compared with $6,321 reported in the year-ago quarter.

The adjusted gross profit fell 11.7% to $245.8 million and the adjusted gross margin contracted 80 basis points (bps) to 72.9%. The downside could be accountable to higher inflation cost which was partially offset by lower shipping cost and effective pricing changes.  

Adjusted SG&A expenses came in at $192.5 million, down 16.8% year over year. As a percentage of revenues, adjusted SG&A expenses contracted 420 bps to 57.1%.

The adjusted income from operations declined 13.7% to $53.3 million. As a percentage of revenues, the metric increased 340 bps to 15.8%.

Other Financial Updates

This company concluded the quarter with cash, cash equivalents and investment securities of $87.7 million, no interest-bearing debt (as of Dec 31) and total shareholders’ equity of approximately $155 million.

The company declared a quarterly cash dividend of $1.64 per share, which was paid on Feb 7, 2023, to shareholders of record as of Dec 20.

Guidance

Management believes that macroeconomic impact will still impact customer acquisition and anticipate first-quarter 2023 revenues in the range of $300-$320 million.

The company’s revenues came in at $417.6 million in the first quarter of 2022. The company expects first-quarter 2023 EPS in the band of $1.75-$2.40, compared with $3.59 reported in the first quarter of 2022.
 
The company assumes that the effective tax rate to be between 26% and 27% in the first quarter of 2023.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

The consensus estimate has shifted -41.89% due to these changes.

VGM Scores

Currently, Medifast has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise Medifast has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.