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Mar 17, 2022

MED:NYSE
Investment Type
Mid - Cap
Risk Level
Action
Rec. Price ($)

 

Company Overview: Medifast, Inc. (NYSE: MED) is a global health and wellness company that manufactures and distributes nutritional products and plans to assist people in losing weight, maintaining weight, and leading a healthy lifestyle. It operates in the United States and Asia Pacific (Hong Kong and Singapore) through its community, OPTAVIA, where its coaches teach the art of developing holistic, healthy habits through its signature "Habits of Health" Transformational System. 

MED Details

Key Takeaways from FY21 (ended December 31, 2021)

  • Surge in Revenue: In FY21, the company's total revenue amounted to USD 1.53 billion, representing a 63.25% increase year-over-year from USD 934.84 million in FY20.
  • Revenue per Active Earning OPTAVIA Coach: In Q4FY21, MED reported that the average revenue per active earning OPTAVIA Coach was USD 6,321 vs. USD 5,932 for FY20, driven by an increase in the number of clients managed by each coach, along with an increase in average client spend.
  • Growth in Operating Margin: MED reported an operating profit of USD 216.24 million for FY21, representing an improvement in operating margin to 14.2% in FY21 vs. 14.4% for FY20.
  • Sharp Uptick in Net Income: The company's net income increased to USD 164.03 million in FY21 from USD 102.86 million in FY20, representing diluted EPS of USD 13.89 in FY21.

Revenues & Operating Profit Key Highlights; Analysis by Kalkine Group

Recent Developments

  • On February 22, 2022, MED announced that it had been named to Forbes' 2022 list of America's Best Mid-Sized Companies, ranking 23 out of 100. The yearly list honours top-performing mid-sized companies based on profits growth, sales growth, return on equity, and total stock return for the most recent 12 months and the previous five years.

Other Key Findings in FY21  

  • On December 08, 2021, MED declared an aggregate USD 16.8 million (USD 1.42 per share) in quarterly dividend, which was paid on February 08, 2022, to shareholders of record on December 21, 2021.
  • MED repurchased common shares worth USD 10 million during Q4FY21. There were 2,084,480 common shares available for repurchase under its stock repurchase program at quarter-end.
  • The company obtained a USD 125.0 million senior secured revolving credit facility on April 13, 2021, with an option to increase the facility amount by up to USD 100.0 million. No amount was borrowed under the facility as of February 23, 2022.

Balance Sheet & Liquidity Position

  • Decreased Cash Balance: The company exited FY21 with total cash and cash equivalents of USD 109.54 million, relatively lower than USD 174.48 million at the end of FY20.
  • Cashflow from Operations: Operating cash inflow during FY21 decreased to USD 94.55 million from USD 145.20 million in the prior corresponding period.
  • Debt-Free Company: While MED has USD 125.0 million available under its credit facility, no amount was withdrawn as of December 31, 2021.

Key Metrics: In FY21, MED's operating and net margins were 14.2% and 10.7%, compared to the industry median of 13.5% and 7.7%, respectively. ROE stood at 91.2%, 7,540 bps more than the industry median.

Profitability Metrics; Analysis by Kalkine Group

Top 10 Shareholders: The top 10 shareholders together form around 52.12% of the total shareholding, while the top 4 constitute the maximum holding. BlackRock Institutional Trust Co., N.A. and The Vanguard Group, Inc., hold the maximum stake in the company at 15.17% and 12.99%, respectively, as also highlighted in the chart below: 

Top 10 Shareholders; Analysis by Kalkine Group 

Risk Analysis

  • Dependence on Third-Party Manufacturers: Third-party manufacturers supply a considerable majority of MED's food and other products. If these manufacturers fail to deliver products in adequate quantity/quality on schedule and at acceptable costs, their financials and reputation may suffer.
  • Competition Risk: MED operates in the weight management industry and is directly competed with by many significant and new players selling various products such as digital tools, app-based health, and wellness monitoring systems, and so on. An increase in demand for these competitors' products could be damaging to MED's operating performance.

Outlook

  • Looking forward, the company expects to generate revenue of USD 1.72 – 1.79 billion in FY22, along with EPS to the tune of USD 14.50 – 16.00.

Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: Over the past nine months, MED's share price has corrected 39.95%. The stock is currently leaning towards the lower end of its 52-week range of USD 161.44 to USD 336.99. We have valued the stock using the Price/Earnings multiple-based illustrative relative valuation method and arrived at a target price with an upside of mid-twenties (in percentage terms). We believe that the company is trading at premium with its peer's average, considering itsdebt free balance sheet, consistency in terms of margin reported over last five years , strong profitability, increasing demand for its products, etc. We have taken peers like NU Skin Enterprises, Inc. (NYSE: NUS) and Edgewell Personal Care Company (NYSE: EPC). Considering the strong topline performance, solid dividend yield, robust balance sheet, positive outlook, associated risks, and current valuation, we give a "Buy" recommendation on the stock at the closing price of USD 169.44, up 3.58% as of March 15, 2022.

MED Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors' appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above.

Technical Indicators Defined

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.


Disclaimer-

Kalkine Equities LLC provides general information about companies and their securities. The information contained in the reports, including any recommendations regarding the value of or transactions in any securities, does not take into account any of your investment objectives, financial situation or needs. Kalkine Equities LLC is not registered as an investment adviser in the U.S. with either the federal or state government. Before you make a decision about whether to invest in any securities, you should take into account your own objectives, financial situation and needs and seek independent financial advice. All information in our reports represents our views as at the date of publication and may change without notice.

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