Wednesday, January 31, 2007

NutriSystem (NASDAQ:NTRI) - bounce candidate

Citigroup comments on NutriSystem (NASDAQ:NTRI) following guidance provided last night. The firm notes Q406 EPS guidance is 50-53c, above consensus of 47c. 4Q rev. is expected to be $131-133mm w/ 159k custs vs. FC of $128mm and guidance of over 155k.

NTRI gave 1Q07 rev. guidance of $200-210mm vs. FC of $214mm and firm's est of $203mm. NTRI guided for 1Q07 new direct customer growth up 23%-32% vs. firm's est of up 15%, which they view favorably. However, mgmt provided 1Q07 EPS guid. of 82c-86c vs FC est. of 94c. As discussed in yesterday's call note (scroll down), they expected mgmt to provide conservative guidance that it could meet or beat.

Citi notes they are very confident in the company's longer-term prospects and believe its business model remains intact. Raising '06 eps by 6c and lowering '07-'08 eps by 10c and 12c, respectively to reflect guidance. Lowering target price by $3 to $92.

According to the firm the best indicator of the full year business for a diet company is January sales -- that month typically sets the tone for the remainder of the year. The firm had been anticipating y/y sales growth of 38% in 1Q07 to $203 million, versus consensus revenue growth of 46%. Based on company guidance issued after the close on 1/30/06, they are now expecting revenue growth of 43% in 1Q07. The critical metric will be new customer acquisitions. The company provided 1Q07 guidance for 290-310k new customers, or at least 23% YOY growth, which compares with Citi's previous estimate for 270k new customers, or 15% YOY growth. The company's guidance assumes healthy growth potential for the company.

While NTRI earnings are expected to grow 30% longer-term, the stock (using aftermarket price of $46) only trades at 16x '07 EPS estimates. This compares with Weight Watchers, a mature company with a 12% long-term EPS growth rate according to First Call, which trades at 22x consensus '07 estimates. Additionally, NTRI has a 30% short interest, which they think assumes new customer growth deteriorates in the near-term (2007 1Q diet season).

Maintains Buy.

Notablecalls: I suspect NTRI makes a good bounce play here. Would be an opportunistic buyer around the $46 level. The stock declined 6 pts following Citi's pre-market comments yesterday and then another 6 pts in after hrs action following the guidance release. The guidance for Q1 looks conservative, making the valuation quite tempting. Notice how Citi's tgt still stands at $92, implying 100% return. The stock's cheap even if the co can grow it's bottom line 20-25%.

1 comment:

ank2006 said...

Below $45 is not good.