Medifast Inc., (NYSE: MED) a company engaged in the production, distribution and sale of weight loss and weight management products as well as other health and diet products, in early November posted lackluster third quarter results for fiscal 2013.
During the third quarter for fiscal 2013, Medifast's net income came in at $5.7 million, a 21 percent drop from $7.2 million in the year-ago quarter. Its top line also slid 5 percent year-on-year to come in at $86.5 million. Despite the seemingly disappointing performance, Medifast's long-term prospects remain bright.
Market and Economic Conditions Set to Improve
Medifast keyed out low consumer spending as the main reason behind Q3's dismal performance. Economists, however, believe that economic conditions in the U.S. will improve notably in 2014, according to a recent poll conducted by Reuters. The poll, which drew the views of more than 60 economists, identified reduced fiscal restraints as one of the key propellants of economic recovery in 2014. In line with this, consumer spending is set to improve.
Increased consumer spending will allow Medifast to record higher receipts in major divisions amid rapid expansion of the weight loss market. According to a report published in 2012 by the Center for Disease Control and Prevention (NASDAQ:CDC), 35.7 percent of adults and 16.9 percent of children between two years and nineteen years of age in the U.S. are obese. As alarming as these numbers are, the CDC projects that the worst is yet to come. By 2030, each state in the U.S. is expected to have an obesity rate of not less than 44 percent, with at least 13 states having rates of more than 60 percent.
The increased prevalence of obesity will thrust Medifast into prominence, allowing it to participate as an active and major partner in the fight against the epidemic. This will not only present favorable social benefits, but it will also act as a boon to Medifast's pocketbook. As is, Medifast has already established a strong presence in some of the worst afflicted states. It has a presence in Alabama, which according to CDC statistics had an obesity rate of 32.2 percent in 2010, the highest in the U.S. Medifast also has a formidable presence in Texas, which according to the same statistics had an obesity rate of 31.0 percent in 2010.
Going forward, Medifast plans to expand rapidly to capitalize on the opportunities that the weight loss market presents. It recently announced that it had reached formal agreements with its existing franchise partners to add 37 Medifast Weight Control Centers in six states nationwide over the next three years.
Although Medifast's relatively slim 52-week range of $21.75 - $29.95 presents a challenge in determining the perfect entry point, its current share price of $25 is cheap in view of the upside potential. In addition to the expected improvements in the market and in the wider economy, Medifastrecently announced that it had completed the repurchase of 786,000 of its common shares under its existing 1,125,000 share repurchase authorization. Share buybacks increase both EPS and the share's value in the eyes of investors.