I’m Hungry for some Weight Watchers (WTW)

Below is a quick ATG equity snapshot of Weight Watchers.  I’m long this stock in my personal portfolio and very intrigued by the long-term return potential given the quality of the brand name and growth potential of the obesity epidemic world-wide.  Having said that, I’m not sure the metrics for this stock are up to ATG standards.  It’s a “theme play” vs. a hard value-based investment thesis.  We’ll see how the ATG committee reacts to my idea and if it makes the portfolio cut…

Ticker

WTW

Comments

Company

Weight Watchers

Entry Price/ Share

TBD

Current Price/ Share

32.44

LTM P/E

7.86

BINGO- THIS IS WHAT WE LOOK FOR!

Forward P/E

11.34

LTM ROE

N/A

N/A due to large buy back in 2013

Price/ Book Value

N/A

LTM EV/ EBITDA

7.58

LTM Dividend Yield

2.2%

Est. Rev. Growth (5 yrs)

-10.9%

Very strange given industry prediction of 14.4%.

Cash/ Debt %

7.5%

No bueno.

Neat-O-Statistic The stock is down from 2012 highs of $80 psf share due to a   poorly timed stock buy back and declining membership numbers despite being   rated the #1 diet program for effectiveness, ease of program, and cost by   most major publications.
ATG Takeaway New CEO, real challenges in combatting declining membership and   free weight-loss apps, but at 7.86 trailing P/E I feel like the downside is   baked in.  Obesity is a high growth   trend internationally and Weight Watchers has the best brand-name recognition   and loyal customer base by far.
ATG Gut Check:
1.  Mkt leader with   moat-like Characteristics?

?

Prominent brand name but free apps are penetrating market share.
2.   Strong long-term   growth prospects and relevance?

?

Negative analyst revenue projections despite storng growth   prospects for the industry as a whole.
3.  Healthy balance sheet?

?

2013 Buy back negatively impacted what had been a very storng   balance sheet.  Nothing is particularly   alarming, but WTW needs to increase revenues and deal with the in-place debt   (at a low rate) over the next 3-5 years.
4. Favorable valuation based on P/E, ROE, etc? YES Cheap based on a P/E basis, Forward and LTM.
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