NutriSystem's New Ads Have Improved But Are Still Out Of Touch, Analyst Says

Nutrisystem Inc. NTRI shares plummeted Monday after receiving a downgrade.

The Analyst

D.A. Davidson analyst Linda Bolton Weiser downgraded the stock from Neutral to Underperform and lowered her price target from $40 to $28.

The Thesis

Bolton Weiser has lower confidence NutriSystem can achieve greater than 30 percent EBITDA growth in the fourth quarter, and as as result is lowering estimates.

The analyst says the company could cut its 2018 guidance when it reports in a few weeks, and thinks another hit to management’s credibility and increased uncertainty surrounding the new year diet season could cause the stock to trade in the low end of its three-year P/E range.

“We are concerned by the deteriorating Google search trends for South Beach and are lowering our 2018E sales for the brand by $2M to $70M,” the analyst write in a note.

Although new TV ads are improved, the analyst says they're still off-trend.

“NTRI’s post-June new TV ads have a more contemporary look and are less cluttered, but they still feature Marie Osmond and emphasize vanity rather than wellness, for example, the 60-second spot that aired in August for the back-to-school sale featured a blond in a red dress standing next to a sports car,” Bolton Weiser said.

NutriSystem has a notable social media presence, "but it's just not driving sales." Price discounting is likely to continue to reactivate customers in the fourth quarter, further lowering Bolton Weiser’s confidence it can achieve consensus fourth quarter EBITDA growth of 33 percent.

Price Action

NutriSystem shares were down 12 percent to $32.56 at time of publication.

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