BoA Bulks Up Its Portfolio With Weight Watchers

Weight Watchers International, Inc. WTW is up nearly 200 percent year-over-year, but some on the Street forecast another 20 percent in upside.

The Rating

Bank of America Merrill Lynch analyst Olivia Tong initiated coverage of Weight Watchers with a Buy rating and $95 price target.

The Thesis

Weight Watchers targets $2 billion in 2020 sales — a mark BofA considers achievable through client expansion.

The firm controls an estimated 10 percent of the market among its core consumer demographic. In that segment alone, it boasts 15 million prospective users, and the analyst estimated it needs between 2.5 million and 3 million to strike its revenue goal.

“While the upfront cost likely poses a hindrance in attracting certain cohorts, especially Gen Z/millennials, WTW has merely scratched the surface on recruitment in its core demographic (40-60-year-old women) with meaningful upside if successful in bringing in new cohorts,” Tong said in a Tuesday note. 

The analyst anticipates a multiyear expansion driven by favorable demographics, untapped partnership and geographic opportunities and a scalable business model with a growing digital platform accounting for one-third of sales and half of gross profits.

BofA projects Weight Watchers will post 24-percent compound annual growth in operating profit and exceed peers in sales and profit growth through 2020.

Price Action

Weight Watchers shares were rising 2 percent off the open at $81.20 at the time of publication Tuesday. 

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