Medifast - Losing Weight in a Hurry

Excerpt from our One Page Barron's Summary (receive it weekly by email by signing up here):

Medifast's Diet Disorder by Neil A. Martin

• Highlighted companies: Medifast (MED), NutriSystem (NTRI)
• Summary: Medifast (MED) sells quick-weight-loss diet "meals," such as shakes, bars, drinks, chili, soups and oatmeal. The company has been plagued by promising developments with no follow-through: 1) In 2003, share prices shot from $3.79 to $18 when the company unveiled a program using call centers to process orders. The call centers were scrapped the next year, and the stock plummeted below 3 over the next 12 months. 2) In 2005, Johns Hopkins' School of Health announced favorable weight-loss and health results for diabetics using Medifast diet plans. Shares surged by about 600%. Again, the gains didn't hold; the stock is back down around 12. Analysts now question the significance of the Hopkins' study; it hasn't been published, although Medifast has been trumpeting its results for more than a year. More problems: 1) Heavy selling by insiders: When the stock was setting highs in May and June, family members, company officers and staff unloaded about 700,000 shares—5.2% of the 13.5 million outstanding. 2) Sudden rises in customer-acquisition costs (CAC) have not been adequately explained. 3) The company boosted its revenue forecast from $66-$68 million to $70-$72 million, but didn't lift its earnings guidance. Outlook: Some say that the company's switch on Aug. 25 from the American Stock Exchange to the New York Stock Exchange should help it find consistency. Shares opened at 12.11 on its first day on the Big Board, closed at 11.48 and has been bouncing a bit above or below 12 since then. Barron's bottom line: Medifast's volatile stock has taken a roller-coaster ride. Now, it looks as if it's headed for 9 a share or lower.
• Quick comment: Asif Suria has been an outspoken Medifast fan, claiming that once growth figures gain enough velocity to show up on Wall Street's radar, they will take off. The Barron's article favors NutriSystem as a play on the obesity market, as does Barry Gitarts. Meanwhile Scott Devitt of Stifel Nicolaus is bearish on NTRI, saying it has failed to reflect longer-term competitive threats from companies such as Medifast.

MED 1-yr Daily Chart