Medifast, Inc.

MED Details

Medifast, Inc. (NYSE: MED) manufactures, distributes, and sells weight reduction, weight management, and other nutritional and health-related products under the OPTAVIA brand. By integrating parts of direct selling and employing a specific direct-to-consumer sales strategy, MED has created a unique business model in which subscription-based meal-plan purchases account for 91.9% of its income. MED has expanded across the Asia Pacific with Hong Kong and Singapore locations.

FY21 Results:

• Surge in Topline: The company's revenues in FY21 (ended December 31, 2021) were USD 1.53 billion, a 63.24% increase YoY from USD 0.93 billion in FY20, due to continued growth in active earning OPTAVIA Coach count and increase in the productivity per active earning OPTAVIA Coach.
• Boost in Bottom line: The company reported a surge in net income to USD 164.03 million in FY21 from USD 102.86 million in FY20.
• Strong Balance Sheet: As of December 31, 2021, the company had cash and cash equivalents (including investment securities) of USD 109.54 million with no outstanding debt.

Key Risks:

• Dependence on Third-Party Manufacturers: Third-party manufacturers provide a significant portion 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.
• Political & Regulatory Risk: The company's expansion into the Asia Pacific markets of Hong Kong and Singapore is an integral part of its overall growth strategy. Its operations in various countries are affected by economic, political, regulatory, and market conditions, impacting sales volume. Its financial outcomes may suffer if it cannot establish a position in specific marketplaces.

Outlook:

• FY22 Estimates: As of February 23, 2022, MED estimates FY22 revenue to be in the range of USD 1.72 - 1.79 billion and diluted EPS to be around USD 14.50 – 16.00. The full-year 2022 profits forecast estimates an effective tax rate between 24.25 and 25.25%.

Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation

(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:

MED's share price has fallen 47.16% in the past nine months and is currently leaning towards the lower-band of the 52-week range of USD 166.27 to USD 336.99. The stock is currently trading far below its 50 and 200 DMA levels, and its RSI Index is at 36.69, indicating an oversold zone. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 218.78.

Considering the significant dip in the stock price, strong track record, constant dividend yield, debt-free company, firm topline and bottom-line performances, associated risks, and current valuation, we recommend a "Buy" rating on the stock at the current price of USD 175.545, up 1.68% as of February 25, 2022, 1:02 PM ET. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Three-Year Technical Price Chart (as of February 25, 2022, at 1:02 PM ET). Source: REFINITIV; Analysis by Kalkine Group

Technical Analysis Summary:

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 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.

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 on 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.