Wednesday, February 20, 2008

NutriSystem (NASDAQ:NTRI): Your daily falling knife

Comments on NutriSystem (NASDAQ:NTRI) following earnings:

- Broadpoint is downgrading their rating to Neutral from Buy. Firm notes having a Buy rating on this stock has been much like havinga javelin through their head: it feels even worse than it looks. Time to pull the javelin outand put this call in the "lessons learned" folder. Firm expects estimates to come down again during the year and thus does not consider NTRI shares attractive at any price greater than $15.

- Oppenheimer notes that although NTRI's 4Q07 results were in-line with consensus (excl. lower than expected tax rate), 1Q08 and 2008 guidance are significantly below expectations. New customer growth for 1Q08 so far remains negative. FY2008 revenue and EBITDA is expected to contract 7.6% and 31.8%, respectively. Firm continues to foresee a very challenging 2008 for NTRI with substantial revenues and earnings risks.

They are reducing 1Q08 estimate to $0.28 from $0.88, 2008 estimate to $2.06 from $2.89, and FY09 estimate to $2.50 from $3.43. Specifically, they estimate A&M expense to increase by 40%+ in 1Q08. There is no change to Perform rating.

- Citigroup is more bullish on NTRI, sticking to their Buy rating while lowering tgt to $29 from $38 saying that discussed in their Feb. 7th preview note, they expected mgmt to provide conservative guidance.

Mgmt mentioned trends through January were weak due in part to the soft economy. Given its $300 price point (for a 30 day supply), sales may be impacted to some extent by a weak economy. Encouragingly, they do not believe the co lost market share given weakness at other diet cos.

NTRI faces very tough compares in 1H08. Therefore, if we see continued stabilized trends in 1H08, NTRI should experience decent growth in 2H08. Shares still appear attractive at 8x '08 EPS.

Notablecalls: Even with ests slashed way below previous levels, the shares still trade below 10x 2008 EPS. There's a close to 70% short interest in the name. It's down big over the past 6 months and down an additional 25% in pre-mkt. The shorts have won. No question about it.

I think they will be ringing the register on at least some of the gains they are now sitting on. I know I would.

Hence, the stock's a buy for a bounce around the $17 level. Not because the business is recovering but rather because of the shorts. Tight leash as always.

Your daily falling knife.

PS: Broadpoint's dg sure feels like capitulation.

PPS: I bought tiny CROX in pre-mkt despite the controversy around the inventory (up yet again) It's just & overshorted.

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