Weight Watchers Is Unlikely To Hit Its Revenue Goal, Goldman Sachs Says In Neutral Initiation

Weight Watchers International, Inc. WTW deserves credit for turning around its core business, but the stock shouldn't be bought by investors at this time, according to Goldman Sachs.

The Analyst

Analyst Jason English initiated coverage of Weight Watchers with a Neutral rating and $73 price target.

The Thesis

Weight Watchers is benefiting from a successful turnaround, but English said this begs the question: what stage is the turnaround in and how sustainable is the double-digit revenue growth rate seen in recent quarters? 

The consensus estimate assumes a bullish outlook moving forward, but the analyst's assumptions point in a different direction. (See English's track record here.)

Weight Watchers is modeled to end 2020 with 4.8 million subscribers, which does imply a robust 9-percent compounded annual growth rate from 2018 estimate, but falls modestly short of the company's own guidance of 5 million users, the analyst said.

Coupled with an assumption that revenue per subscriber continues to move lower, Weight Watchers' guidance of $2 billion in revenueby 2020 is likely unattainable, English said. 

Finally, Weight Watchers may be up against a shift in sentiment, as being overweight has "become more acceptable," the analyst said. The percentage of overweight and obese people who are actively dieting to lose weight has fallen from around 66 percent in 2012 to around 55 percent in 2016, he said. 

Price Action

Weight Watchers shares were moving down 1.26 percent to $73.96 at the time of publication Tuesday morning.

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Analysts React To Weight Watcher's Q2 Earnings

Oppenheimer Bullish On Weight Watchers Margin Expansion Opportunities