Oppenheimer Bullish On Weight Watchers Margin Expansion Opportunities

Major changes are afoot at Weight Watchers International, Inc. WTW, and one Wall Street analyst believes Weight Watcher’s explosive 2018 growth is just the beginning of the long-term story.

The Analyst

Oppenheimer analyst Brian Nagel initiated coverage of Weight Watchers with an Outperform rating and $98 price target.

The Thesis

Weight Watchers’ new strategies have the company on the path to long-term growth and margin expansion.

“Under the leadership of new CEO Mindy Grossman and her team, WTW is now tactfully introducing improved programming upon an enhanced digital infrastructure, so as to better connect with a larger and more diverse audience of subscribers,” Nagel wrote in a note on Wednesday.

Nagel said the pullback off of recent highs is mostly technical in nature and serves as a buying opportunity.

Oppenheimer projects EPS of $3.00 in 2018, on the high end of the company’s guidance range. Looking ahead, Nagel forecasts EPS to grow to $3.86 in 2019 and $4.90 in 2020, slightly ahead of consensus analyst estimates.

In the most recent quarter, Weight Watchers reported a 28-percent uptick in digital subscribers, which reached 4.5 million. Nagel says the retention rate of subscribers is also climbing higher, up from between eight and nine months in early 2017 to nearly 10 months today.

From 2018 to 2020, Nagel projects Weight Watchers will generate about $220 million in free cash flow, which is can use to de-lever and de-risk its balance sheet.

Price Action

Weight Watchers shares traded higher by 3 percent tot he $78.60 area following the positive commentary and are now up 79 percent year-to-date.

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