Medifast Gaining Traction

Apr.24.09 | About: Medifast, Inc. (MED)

GeoNuggets® - Quick Check List Highlighting Undiscovered Opportunities

Medifast Inc. (NYSE:MED)

Company Description: The company sells easy-to-use, clinically proven portion-controlled weight loss program via four unique distribution channels: 1) the web and national call centers, 2) national network of physicians, 3) medically supervised Medifast Weight Control Centers, and 4) the Take Shape For Life direct-selling division, a network of health coaches.

Price (4/22/09): $5.25
Trailing P/E: 13.82

Fiscal Year Ends In December

12 Months trailing EPS: $0.38
2009 Analyst Estimate: $0.52

Reasons for optimism


1. The company meets six out of ten GeoBargain categories.

NO Recent 52-week high
YES 30% EPS growth rate: Analyst Forecast is 37%
YES 10% revenue growth: Analyst Forecast is 14%
YES Strong balance sheet: Debt to Equity Ratio is 11 to 1; Current Ratio is 2.48 to 1; Positive Operating Cash Flow
NO Return on Equity is at least 15%: 14.23%
NO 8% pre-tax margins: 7.44%
YES Under 50 million shares outstanding, but exceptions to this rule are routinely made: 14.33 Million Diluted Shares
YES High insider ownership: 12.94%
NO Limited institutional ownership
YES P/E Divided by EPS growth rate (PEG Ratio) less than one: 13.82/37= 0.37

2. Medifast participates in a favorable growth industry.

3. Since it has its own manufacturing facility, Medifast can benefit from improved margins when compared to competitors who outsource the majority of production.

4. Medifast's multi-level marketing model has some recession resistant qualities, giving individuals the opportunity to supplement their income. In addition, the weekly cost of meals is less expensive when compared to grocery store purchases.

5. Comments in the 2008 fourth quarter press release indicate that the positive 2008 growth trend has continued into the first quarter of 2009.

Special Investment Risk Consideration

Investors should be aware that the Medifast story does not come without controversy, which has put negative pressure on the stock. In particular, an individual has launched a campaign questioning the validity of the company's multi-level marketing business model. Medifast has refuted all claims arising from the campaign. He has also launched similar movements against other multi-level marketing firms. To read more about this situation please visit the company's 2008 10K page 12.

While the GeoTeam® generally avoids controversial situations, the low valuation has prompted us to follow Medifast more closely.

The GeoTeam® will provide expanded details on MED in the near future.

Potential valuation scenarios if the company can achieve its EPS growth goals


Short-Term Potential value based on fully taxed adjusted trailing EPS

P/E 20 * $0.38 = $7.60
P/E 25 * $0.38 = $9.50

Short-term Potential value based on 2009 fully taxed adjusted Implied EPS Guidance

P/E 15 * $0.52 = $7.80

These scenarios are not intended to be investment advice, but are scenarios based on some commonly used investment guidelines. They are provided to aid investors in making their own investment decisions.