Wednesday, October 11, 2006

Calls of Note Part 2

- Citigroup believes business trends at NutriSystem (NASDAQ:NTRI) are strong and expect 3Q new customer growth of up 80% (vs guidance of up 78%) and EPS of 52c vs 47c-50c guidance. If the company achieves our ests, it would imply NTRI's core women's biz and men's initiatives (quarterbacked by Dan Marino) are doing well. This would provide improved visibility into NTRI's l-t growth prospects.

Given the recent stock run-up (up 30% in the last few weeks), the stock could trade off on good 3Q results (like it did last Q when it reported 7c EPS upside). In this case, the firm would aggressively buy shares on potential stock weakness.

NTRI is a cheap (~24x '07 EPS) hyper-growth stock, which is still in the early stage of its growth cycle. NTRI is the top pick within firm's coverage universe.

Firm is raising their 3Q06 EPS estimate from $0.49 to $0.52 and FY06 EPS by 2c to incorporate the strong trends in new customer growth despite a 15% increase in CAC in 2H06. They anticipate strong trends from the men's program due to the addition of Dan Marino as a spokesperson in July.Firm believes that new customer growth was strong even though the summer months are generally not a strong dieting season.

Target is raised to $95 from $85.

Notablecalls: Note that Kaufman upped their tgt to $100 yesterday. NTRI failed to hold the early gain. Will see how Citi fares. Expect to see a pop.

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