WeightWatchers Analyst Expects Stock To Slim Down After Gaining 80% On Telehealth Takeover

One WW International Inc WW analyst downgraded the shares on Wednesday, and it has less to do with the company itself and more to do with the abnormal surge in the stock this week.

What Happened: Craig-Hallum analyst Alex Fuhrman downgraded WW international, also known as WeightWatchers, from Hold to Sell and set a $4 price target a day after the stock traded from below $4 per share to nearly $7 in one day.

"We’re believers in WW’s product and mission, but it is hard to justify yesterday’s 79% move in the stock, which appears to have been driven by excitement about the company’s recently announced plan to acquire a telehealth business that offers prescription medicines like Wegovy and Ozempic," the Craig-Hallum analyst wrote in a new note to clients.

Although Fuhrman is a fan of the acquisition longer-term, he noted the company recently warned that first-quarter sales are likely to decline more than 20% on a year-over-year basis.

Furthermore, profitability has diminished over the last three years and the analyst no longer expects WW International to generate positive free cash flow this year. 

See Also: Looking To Shed Some Pounds? WeightWatchers To Offer Weight-Loss Drugs Like Ozempic

WeightWatchers announced plans this week to acquire Weekend Health, doing business as "Sequence," which has grown into an approximately $25-million annual revenue run-rate business serving approximately 24,000 members across the U.S. as of last month. 

Although it's likely the right move for WW longer term, Fuhrman doesn't believe the acquisition moves the needle on his 2023 estimates, which makes him cautious following the nearly 80% surge on Tuesday.

"On our new 2023 estimates, the company’s net debt represents ~11x EBITDA and it is difficult to see that ratio improving much, if at all, by adding Sequence into the numbers when weighed against $39M in cash that will be paid up front plus another $32M over two years," the Craig-Hallum analyst said.

WW Price Action: WW International has a 52-week high og $11.03 and a 52-week low of $3.28, according to Benzinga Pro. 

WeightWatcher shares were down 19% at $5.61 Wednesday afternoon.

Photo: Mike Mozart from Flickr.