Jan. 3, 2019
More people are beginning to use the “R” word – recession. Diet companies are included.
WW, formerly known as Weight Watchers International Inc. , is one of the health and beauty companies in the D.A. Davidson coverage universe that’s “recession resistant,” analysts wrote in a Thursday note. Analysts used eight criteria to determine recession resistance including sales decline in the last recession and operating leverage. WW has “low operating leverage, high operating and free cash flow margins, and strong strategic position,” D.A. Davidson said. Still, shares are down 46.6% over the past three months.
Medifast Inc. , a company that provides weight-loss plans, sits atop this list thanks to its “debt-free balance sheet, high free cash flow margin, and lack of sales cyclicality.”
Commentary
Now why would Medifast, which sells weight loss products/foods NOT be susceptible to seasonal ups and downs, and WW would be? I don’t get the rationale by D.A. Davidson here. They are both weight loss companies, and as such, there are seasonal fluctuations that affect both. Enrollments soar in the 1st quarter of the year, then decline the rest of the year, with the low point being the 4th quarter. Take Wall St. stock analysts opinions with a grain of salt. They still don’t really understand the weight loss market.
However, I do agree that WW is recession-resistant, mainly because in a recession, when consumers’ disposable income is squeezed, they will shift to less costly and DIY weight loss methods (fitness apps, purchasing retail meal replacement shakes and nutrition bars, skipping meals, OTC diet pills). WW, compared to programs such as NutriSystem and Jenny Craig, is a low-priced program. Jenny and NutriSystem will cost you from $250 to $400 a month for their foods.