Medifast: Record Q2 Sales, Optimistic Q3

Oct.20.08 | About: Medifast, Inc. (MED)

Medifast, Inc. (NYSE:MED) is growing quickly as diet, health and fitness programs stay hot even in a slowing economy. Revenues rose 25% in the second quarter and the company recently said third quarter financials look strong. The company has a forward P/E of 9.97.

Company Description

Medifast sells a portion-controlled weight loss products and programs. It sells the products and programs through the Internet, physicians, medically supervised Medifast Weight Control Centers and the Take Shape for Life direct-selling division.

The company, a Zacks #1 Rank (strong buy), continues to expand its strategy of opening corporate and franchisee owned clinics throughout the United States. On Oct 8, the company announced the opening of the first franchisee-owned Medifast Weight Control Center in Baltimore. It will be the first of four clinics in the Baltimore market.

Medifast currently owns 20-corporate owned clinics, with 10 in Dallas, 8 in Houston and 2 in Orlando.

Medifast Optimistic About the Third Quarter

On Oct 8, the company also provided a business update given the financial crisis griping the country.

Medifast said that it continues to operate at a high level and that financial results for the third quarter will be strong.

"Our Take Shape For Life direct sales segment continues to exhibit strong growth as the number of Health Coaches increases month to month," said Michael S. McDevitt, CEO.

"This increase in Health Coaches is being driven by the unique market potential for our products combined with our strong field organization and the recent tools and the training that we have made available to our coaches," he said.

"The prevailing market conditions may also be a positive factor. During a recession or downturn in the overall economic environment, direct selling business models such as Take Shape For Life often experience accelerated growth as people look for supplemental income opportunities," he added.

Medifast Reports Record Second Quarter Sales

On Aug 7, Medifast reported second quarter earnings that beat Wall Street estimates by 22.20%. Net income was $1.5 million, or 11 cents per share, compared to 7 cents a share in the year ago period. Analysts expected 9 cents.

Revenues rose 25% to $27.5 million from $22 million in the second quarter of 2007. Take Shape for Life was the hottest segment, growing 79% year over year, and was 44% of the overall revenues in the quarter. The number of active health coaches climbed 87% to 2,800 from 1,500 in 2007.

Clinic revenues were also strong. Average monthly revenue per clinic increased 5%, to $41,000 from $39,000 in the second quarter last year.

Medifast Issues Bullish 2008 Guidance

In August, the company was extremely bullish about future growth. It forecast revenue growth in the range of 8-10% for 2008 and earnings per share growth of 30-35%. In its Oct 8 statement, the company said it continues to see strong earnings potential for the third quarter.

Medifast reports third-quarter earnings on Nov 6.

Consensus Estimates Rise for the Third Quarter and the Full Year

Covering analysts are equally as bullish as estimates have risen for both the third quarter and the full year. Third quarter estimates rose a penny to 11 cents in the last 60 days. Full year estimates are up 2 cents to 38 in the same time period.

Analysts see 2008 year-over-year earnings growth of 35.71%.

Value Fundamentals

Medifast has a forward P/E of 9.97. Its price-to-book is 1.92. The company has a solid 5-year average return on equity [ROE] of 14.54%.