NutriSystem's 4Q Should Vindicate Past Quarters

You are probably thinking: "I don’t want to hear about NutriSystem (NTRI); I lost money the last two quarters they announced!"

However, here are the reasons I can’t wait until NTRI announces 4th quarter preliminary results and next quarter guidance. They will be reporting Q4 results during the week of February 11th and I am expecting them to give preliminary guidance sometime after January 28th.

I have noticed over the past couple of weeks some heavy option trades for the January contract. I assume they are volatility plays or someone trying to accumulate shares because they are straddle trades at the 30 strike. I personally am looking at the NTRI FEB 25 & 30 calls... maybe the 35s for a nice lotto ticket!

The last time NTRI gave guidance, on October 3rd 2007, the stock dropped 35%. They mentioned slower growth, increased competition from Alli (the weight loss drug) and higher marketing costs as catalysts behind the drop.

During this time, short interest has increased to 60% of the float. (That was not a typo; go here and see for yourself.)

They just announced they are expanding into Canada. It isn’t the same as if they said they are expanding into China, however I do believe this is a good step in the direction of global expansion.

The company said in their last report that men made up 28% of new customers. Ask Weight Watchers International (WTW) how many of their customers are men? Also WTW trades at 17.5 times earnings while NTRI is at 8 times.

There has been some fund buying as well; WS Management picked up 3 million shares on October 4th, the day it collapsed. Citigroup picked up 1.8 million shares on November 9th.

We are in the News Year's resolution season and the phones will be ringing off the hook at NTRI with people looking to sign up for the new advantage program.

NTRI has a market cap of $875 million and their revenue for the last 12 months was $773 million. That means they are trading at 1.13 times revenue! Remember, in Q3 revenue increased 21% even though earnings only went up a penny. They have a net profit margin of 12%.

In October, the board of directors authorized an additional $100 million share repurchase. Their Q3 press release states:

"Although we may pursue acquisitions in adjacent health and wellness categories in the future, with a strong cash position and through the recently announced $200 million credit facility, we believe the best way to return value to our shareholders is through repurchasing our shares at this time," concluded Mr. Hagan.

Disclosure: I am currently Long NTRI calls.

Comments

[ballsschweaty:]

Nutrisystem is a fad that is quickly waning. Nobody wants to rely on their food for the long term. The only sustainable path to weight loss is a change in diet and exercise habits. A gimmick of pre packed food that must be purchased from Nutrisystem quickly dies out once people become disillusioned.

I predice ntri goes bankrupt in 2009.

Enjoy.

2008 Jan 06 09:04 AM

[Stock Yid:]

It seems like it is a taking a long time for this 35 year old fad to die. Being that you predict the company goes bankrupt you should short this beautiful 9% up day. At least you are in the majority in thinking the stock will go down, its 60% short interest supports your thinking. The key in making money in the market is seeing what others don't see. Short overvalued stocks and buy undervalued!

2008 Jan 07 07:11 PM

[youngdoc:]

I think the Alli fear is unwarranted. Nobody talks about the side effects of Alli, loose stools, diarrhea, flatulance, abdominal cramps. There is a saying in medicine that the drug reps couldn't give the drug away due to side effects. Once somone tries it, they will realize that they need to go back to a diet and weight loss program which is what nutrisystems is selling. So I believe their earnings will not be a bad as predicted. I will buy more when shorts sell.

2008 Jan 09 12:26 AM

[buzzlightyear:]

Alli lives up to its name. A study just came out that people do not lose weight with Alli. There is another product cross referenced in a recent article called Ztrim. It is a govt invention that is all natural. I have a group of overweight friends who have used it and had very good results without any side effects. The reason it works is that it lowers a person calorie intake. The symbol is ZTM and it is a cheap stock at 33 cents because according to the stock guru it underperformed 90% of microcaps but outperformed that same group in revenue growth.

2008 Jan 17 04:03 AM