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 so..cheap & overshorted.

NutriSystem (NASDAQ:NTRI): Comments following Q3 results

Couple of firms comment on Nutrisystem (NASDAQ:NTRI) after Q3 results were announced last night:

- CIBC notes they continue to expect substantial risks to NTRI's business in 4Q and see challenges in 1Q08 as well. Firm sees a renewed marketing push for alliTM early in 2008 which could pressure NTRI's new Advance program. There are no changes to their FY07 and FY08 EPS estimates.

They believe that the success of NTRI's Advance program is pivotal to the brand. There is little information on the menus, but they think that unless there is a major new weight loss benefit to consumers, Advance may be more helpful to reactivation sales than switching customers away from alli.

Despite depressed PE multiples and solid cash flow, they see further downside near term for NTRI shares. New customer revenues represent 50%+ of the total. Unless, there is firm evidence of a revival in new customer add rates, it will be difficult for NTRI's multiple to recover.

- Citigroup is far more positive saying 4Q guidance was conservative and inline with what they expected -- flat sales, (20)% new customer growth and mid 30c EPS. Firm continues to believe NTRI is on track to achieve their ests of 7% sales growth, (14%) new customer growth and 39c EPS.

Mgmt mentioned that they expected y/y growth in 2008. Trading at 7x 2008 EPS, investors are clearly expecting a meaningful EPS decline. Citi disagrees and expects decent growth in 2008 due to new initiatives launching in 1Q08 that include a new ad campaign, food products, and Canadian market entry. They are also encouraged by reactivations driving 90c of EPS in 2007 and significantly greater contribution expected in 2008.

NTRI has a free cash flow yield of 10%. In addition, the company has the immediate capacity to buy back a little less than half the outstanding shares not held by insiders. Also, the firm would not rule out a private equity/mgmt buyout if shares remain at depressed levels. Maintains Buy and lowers tgt to $52 from $55 due to lower tgt multiple.

Notablecalls: I don't see NTRI as a broken story here. Prior to Allis’ launch in mid-June, NTRI was growing customers in the 50% range in 1H07. 3Q is declined 7%. Citi do not believe it is likely the company reached a saturation point in one quarter — rather, it was likely a result of competition from Alli, which they think is a short-term impact. I continue to think they are right.

The Atkins diet fat lasted more than a year and it's quite possible that Alli's will too. But considering Alli's side-effects profile, NTRI offering will likely have the last say. Remember, NTRI has been around since 1972.

NTRI is getting dirt cheap here and with a 40%+ short interest, that's a dangerous combo if you're short the name.

The stock was down close to 10% in after hours action. I see it as a bounce oppy.

NutriSystem (NASDAQ:NTRI): Citi comments ahead of Q3 report

- Citigroup is out on NutriSystem (NASDAQ:NTRI) saying their channel checks indicate deteriorating trends have stabilized during the first few weeks of 4Q07. Firm is forecasting approximately 7% sales growth in 4Q.

Citi believes NTRI mgmt will provide conservative 4Q sales guidance about 5-10 points below what they are on track to achieve. The firm therefore expects flat 4Q revenue growth guidance vs. consensus of up 8%. This translates to about a 20% decline in new customers (consistent with trends at end of 3Q) and mid 30c range EPS for 4Q07 vs. consensus of 47c

They are not lowering their 4Q07 sales (up 7%) and 39c EPS estimate as they think the company will ultimately be able to achieve their forecasts.

Citi believes sentiment on the stock is already very negative considering that the stock is down 38% since preannouncingand has a 43% short interest. Additionally, based on their conversations with investors, current holders appear to expect conservative guidance and are waiting on 1Q08 trends (start of diet season).

1Q08 will be far more important than 2H07 as NTRI launches its new ad campaign and food products, and enters the Canadian market. Given its turnaround potential with 1Q08 initiatives and relatively low valuation, they view NTRI as attractive for investors with a long-term horizon. Maintains Buy and $55 tgt.

Notablecalls: Not sure how traders should play this one. Buy it now and sell ahead of tonight's earnings/guidance release? Or hope it will gap down on weaker than consensus guidance and then buy it for a bounce?

Q4 is the weakest quarter for NTRI and I would not be surprised to see initial management guidance below current consensus.

By the way, Broadpoint is out this morning on NTRI saying they think investors would likely leave nothing on the table by waiting to hear management's explanation of how 3Q:07 varied materially from their original outlook. They also can't say with any degree of confidence that there is not another shoe to drop. Firm continues to believe that NTRI is a real service from a real company, and not the passing fad bears make it out to be. Therefore, it's worth investor time to do the work on NTRI, in their view, but they see no reason to buy ahead of today's 3Q earnings report.

Go figure...

Nutrisystem (NASDAQ:NTRI): Citigroup defending

- Citigroup is out on Nutrisystem (NASDAQ:NTRI) reiterating their Buy rating and raising their 07-09 EPS ests by 10c, 11c, and 12c, given updated guidance.

On conf. call, mgmt mentioned some weakness during last few wks of Price (24 Jul 07) June/first few wks of July possibly due to launch of the OTC drug Alli. As a result, 3Q EPS guidance was 77c-82c vs FC of 89c. Citi thinks these concerns will be short-lived due to the potential side-effects of Alli. NTRI trends have improved over the past week. In addition, they believe that mgmt has historically been conservative and have consistently delivered on results.

NTRI was down over $9 in aftermarket last night. They would use return this opportunity to aggressively acquire shares based on their belief in the long-term business model, management's historically conservative guidance and attractive valuation.

Tgt is cut to $90 from $96 due primarly to multiple contraction by peer group.

Notablecalls: Scroll down for initial comments.

NutriSystem Inc. (NASDAQ:NTRI): Expect the stock to bounce

- NutriSystem Inc. (NASDAQ:NTRI) reported a higher quarterly profit mainly on growth in its core women's market but guided third-quarter below analysts' view, sending its shares down over 15 percent in after-market trade. In a conference call with analysts, the fitness products company said it saw some slight softness in demand starting in late June and carrying into early July. The launch of a new over-the-counter weight loss pill from GlaxoSmithKline Plc has had an effect, it added:

- First Albany notes that while they are disappointed to see the aftermarket action in NTRI shares, they are relieved to see more cautious guidance than management offered for 2Q:07 (granted, which it went on to beat.) Aggressive 2Q:07 guidance no doubt created momentum and expectations for 3Q:07 that were unrealistic.

NTRI shares will likely be very weak today on 3Q:07 guidance perceived as weak. However, financial and operational trends evident in 2Q:07 results speak of exceptional fundamentals. Revenue, gross profit, operating income, EBITDA, and net income exceeded firm's forecasts by 8%-12% each. First Albany's 2007 revenue and EPS estimates go to $826.4 million and $3.49 from $800 million and $3.39. respectively. 2008 revenue and EPS estimates go to $1.062 billion and $4.55 from $953.5 million and $4.01, respectively.

Also, NTRI trades like a fad diet, when in fact, it's a viable weight loss service. NTRI shares currently trade at approximately 14x 2008 EPS estimate (and may open today at 12x) vs. 17x for a peer group and 18.4x for Watchers International (WTW). NTRI's P/E/G ratio is 0.5x vs. 1.2x for the peer group and 1.3x for WTW.

Firm notes they don't know when the market will reward NTRI the premium multiple it deserves vis-à-vis WTW, but they can't see NTRI shares trading ata sub-0.6x PEG ratio if the company achieves 2H:07 expectations.

Maintains Buy and $75 tgt.

Notablecalls: This stock is cheap compared to its growth rate. You have a momo stock trading 12-13x next years EPS this morning. I suggest you grab it.

Not only is it cheap, it has catalysts ahead: 1) The men's & seniors' line is still in its infancy 2) NTRI is only starting its Canadian expansion 3) They are coming up with new kinds of foods.

NTRI has been around over 25 years. It's not a fad. It does not deserve the discount vs. other diet plays that are growing WAY slower.

I would pay $56 for it this morning and have a big smile on my face. It's going to bounce! I think the stock remains in Actionable territory until $58-$59.

PS: I'm hearing Lehman is out with a downgrade on NTRI taking their rating to Equal Weight from Overweight. That's just stupid but may get you a nice price early on!

Calls of Note Part 2

- CIBC notes they remain bullish on NutriSystem's (NASDAQ:NTRI) near-term outlook. Firm believes that 1Q07 results should be reported at least in line with their estimate of $0.90 per share, with new customer adds of about 300K. NTRI will report 1Q07 earnings on Wednesday, April 25th.

Firm's analysis of comScore data indicates that traffic to online diet sites continued to slow yoy in 1Q. But nutrisystem.com's traffic share of top diet sites was stable while yoy growth rates in total traffic, and particularly for male traffic, outperformed other top sites.

NTRI shares are trading at 15x FY08 EPS estimate or 17x next 12-months estimated EPS. The latter compares to historical average of 28.5x and a hi-lo range of 47.6x-13.7x. Given the momentum they see in NTRI's business, they'd be opportunistic buyers at this level.

Firm continues to see strength in NTRI's business. Its product and service offering as well as marketing are favorably positioned to target male dieters. Negatives include tough existing and new competition, slowing online traffic trends in the sector, and volatility in the stock.

Notablecalls: Expect to see some buy interest in NTRI following the call. Look for an opening range breakout before stepping in.

Color On Quarter: NutriSystem (NASDAQ:NTRI)

Several firms commenting NutriSystem (NASDAQ:NTRI) after co surprised positively with its results and outlook yesterday after the close.

- Lazard notes that NutriSystem raised the guidance range for 1Q revenues and EPS to $205-$215 million and $0.88-$0.92, respectively, from the prior range of $200-$210 million and $0.82-$0.86, due to momentum in the men's segment and reactivations, as well as improvements in CAC over the course of the quarter. The company also provided initial 2007 revenue and EPS guidance of $720-$740 million (+27%-30% year-over year) and $3.00-$3.10 (+31%-35%) vs. firm's estimates of $745 million and $2.85. Firm is also introducing above-consensus 2008 estimates of $875 million and $3.50.

Firm says that reactivations key in offsetting higher CAC. As it becomes more expensive to add incremental new customers, firm expects NutriSystem to increase focus on reactivating prior customers, who convert at a much lower marketing cost through direct mail/email campaigns.

Management has targeted $80 million in revenues and $25 million in after-tax profit from reactivations in 2007 (~$0.65/share). Importantly, reactivating customers are not included in the company's new customer count; as a result, firm believes marketing as a percentage of revenues is becoming a more accurate measure of efficiency than CAC.

Price tgt goes to $75 from $72.

- BB&T notes that the company raised Q1 07 guidance from its initial thoughts on January 31, 2007. It raised Q1 revenue guidance by $5 M, to a new range of $205-$215 M, and EPS by $0.06 to a new range of $0.88 to $0.92. These figures are up 40% and 47%, respectively, from Q1 06. Firm thinks the major difference in guidance between Jan 31 and yesterday was the company's pullback from some ineffective media buys, which both raised advertising costs and decreased conversion rates earlier in the quarter.

NutriSystem also provided its first take at FY 07 guidance, at $3.00 to $3.10, significantly above $2.89 consensus and firm's $2.95 estimate. Factors contributing to 2007 growth should include a roughly 20% increase in media spending, targeting new customer segments such as
seniors, while continuing to penetrate men's and women's markets. This should drive roughly 25% revenue growth and roughly 35% EPS growth, with cost of goods being the most significant leverage point in the income statement.

- Stifel is the most negative of the bunch, noting that they have, since the outset, been focused on the negatives and continue to do so. Firm believes the company uses marketing gimmickry to convince customers to use its program and they believe the company has been very successful thus far because the market is so large. Firm believes the satisfaction rates of its overall customer base is low (online third-party opinion surveys) and they believe that there are several components of the NTRI's advertisements that are not inline with management's comments in 4Q06 press release of having a singular focus on its customer. Firm knows companies that have a singular focus on the customer such as Amazon and Blue Nile, and the NTRI consumer value proposition does not qualify, in their opinion. NTRI ads suggest five meals per day yet only four of the eighteen components of daily diet are purchased from NTRI (4/17 for women), the three NTRI foods and snack amount to approx 700 calories daily, low cost of $294 becomes $400-$450 after adding supplements, and convenience (the non-NTRI foods require grocery visits and refrigeration in many cases). Also, the average customer stay is 8.9 weeks which means the company churns its customer base 1.5x per quarter.

- Kaufman says that while the company continues to grow and deliver, the stock has become a target of the expectations game. While this is unavoidable for growth stocks, firm believe the share buyback will help in reducing the volatility in the stock. With confidence restored by the new guidance, firm believes that the stock has acquired characteristics that can be appreciated by both growth and value investors.

Notablecalls: Strange turn of events in quite a short time as the company upped the Q1 guidance provided just few weeks ago. While the guidance for Q1 and 2007 is better than expected, the Q1 guidance fluctuation shows how exposed the numbers (and even more, the stock) is to marketing experiments by the mgmt. As such, don't think the stock will command the multiples it used to enjoy before outset.

Calls of Note Part 4

- Citigroup comments on Nutrisystem (NASDAQ:NTRI) saying they expect decent 4Q results and are modeling about the mid-point of mgmt's recent guidance. 1Q07 and 2007 guidance will be key though.

With another 2 weeks of business to analyze since the Jan. 31 guidance, they expect mgmt to confirm 1Q07 new customer and EPS guidance. Investors likely expect 30%+ CAC, which should be driven by an increased mix of men, investment in its senior's biz, higher ad rates, and difficult compares.

The firm, however, expect mgmt to initiate conservative '07 EPS guidance (mgmt has historically been conservative) around 5-10% below what they're on track to achieving. They therefore expect a conservative guidance range of about $2.60-$2.75 (vs. Citi est of $2.90, which they think they'll ultimately achieve).

While they expect a solid 4Q and 1Q outlook, the firm doesn't expect the negative investor sentiment to subside until it reports 1Q or 2Q results. At 15x $2.90 est w/ 30% LT EPS growth, they find NTRI compelling and is firm's top pick.

Citigroup rates NutriSystem a Buy with a target price of $92. Management appears to be successfully engineering a turnaround of the NutriSystem brand, which we think is still in the early stage of its growth cycle. NTRI's highly recognized, yet under-levered brand, combined with its high-value proposition for dieters, should allow NTRI to benefit from the rapidly growing diet market. In addition, NTRI should drive new customer growth through further penetration of the US market (only needs 1.5% share to become a $1 billion brand in five years), expansion into international markets, price increases and a focus on male dieters. In firm's view, NTRI is a very good way to capitalize on America's growing obesity epidemic.

Notablecalls: I made a bad s-t call on NTRI last week. The stock gapped up $0.50 following positive comments by Kaufman but gave up most of the gain 30 mins into the trading day. While I continue to like NTRI, I suspect that in the s-t it's a broken stock. One for investors.

Kaufman believes NutriSystem (NASDAQ:NTRI) to be undervalued

- Kaufman is positive on NutriSystem (NASDAQ:NTRI) saying the stock has pulled back around 40% from its December 2006 high of $75.20. At these levels, they believe that NTRI is undervalued. In this report the firm examines the economics of the reactivation business (which they feel will be a key driver for 2007 and beyond), the potential benefit of a share buyback program and current relative valuation. Firm is also introducing 2008 revenue estimate of $836 million (up 15% Y/Y) and EPS of $3.55 (up 18% Y/Y).

While new customers are currently the key driver for revenue and EPS for 2007, they believe that 2008 will benefit from reactivating customers, which provide high-margin revenues.

As of 4Q06, theybelieve NTRI could have $124 million in cash and the firm expects the company to generate another $124.4 million in free cash flow in 2007. If one assumes that NTRI spends all its free cash flow in 2007 on share buybacks (at higher average buyback prices through 2007), it could be highly accretive to EPS.

In the fall of 2006, management had acquired approximately one million shares at an average cost of $50; with the stock lower than the previous buyback price, they believe that management could be inclined to announce a share buyback. A decision could be made during the board meeting to be held before the 4Q06 earnings call on Feb 14, 2007. Additionally, the company could also announce a small dividend sometime this year. ,

Kaufman compared NTRI to two separate sets of companies-ecommerce and diet-related-on an EV/ EBITDA basis. NTRI trades at EV/2007 EBITDA of 8.9x versus a 14.6x average for other ecommerce companies; diet companies trade at an average EV/2007 EBITDA of 10.3x, a 16% premium to NTRI, which has a better growth and margin profile. Even on a GAAP EPS basis, NTRI trades at a P/E multiple of 15x, while the diet company peer group is at a 19.5x multiple.

Firm's price tgt is $85. Reits Buy.

Notablecalls: Expect to see a sizable move following the comments. NTRI is a mover. Actionable call alert!

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%.

Calls of Note Part 2

- Citigroup notes that despite modestly negative data points, they still like NutriSystem's (NASDAQ:NTRI) stock over the next year. These negative data points could lead to near-term volatility: 1) website traffic showed moderating (albeit decent) growth; 2) firm believes the retail test w/ GNC is performing under plan; and 3) there is increased competition and copycat programs (particularly regarding the men's plan). While they see near-term volatility, checks indicate that men's program is doing well and though it is still in the early stages, NTRI's senior program is gaining some momentum. In 1Q07 as well as the full year '07, Citi expects 10-20% new customer growth. They would also expect a 15-25% increase in CAC, as they think marketing rose at a greater rate due to increased marketing spent on men and seniors in addition to the core women's business. Firm thinks sell-side analyst estimates may be at the upper end of what the company can achieve (at 36% revenue growth for '07), but investors are not expecting much (19x '07 consensus EPS and 30% short interest) despite 30% long-term EPS growth.

Maintains Buy but lowers tgt to $95 from $105.

Notablecalls: Not actionable but good to know category.

Calls of Note Part 5

- Kaufman Bros says they believe that NutriSystem (NASDAQ:NTRI) is currently conducting a test with GNC, the largest specialty retailer of health, wellness and diet products. From the information we have it seems that this is a co-marketing test (for now, at least). For more information, visit www.nutrisystem.com/gnc.

GNC has stores in more than 45 countries. GNC has 5,800 locations worldwide, with 4,812 U.S. locations, of which 2,529 are company-owned and the rest franchised or with Rite Aid (store-in-store format). The company also has 137 locations in Canada and 873 locations in 45 other countries.

Marketing has already started. Firm believes that GNC has sent emails to its customers marketing this program. They do not know if this deal will include in-store promotions, but that seems highly likely.

Maintains Buy and $102 tgt on NTRI.

Notablecalls: Expect to see buy interest in NTRI.

Calls of Note Part 4

- Stifel comments on on NutriSystem (NASDAQ:NTRI) noting it's a company that has been a phenomenal success story, having just completed a quarter in which it reported $155 million in revenue and added 235,000 new customers. The firm has long questioned the annuity value of NTRI's business and have been dead wrong on the stock but continue to believe they are dead right on the long-term prospects. To be sure, they note that if they are wrong about the annuitized value of the business, they believe 20x forward earnings is not expensive for its growth.

Firm believes the weight loss industry is one based on the psychological manipulation of vulnerable customers and, because of this, they pay close attention to marketing campaigns. NTRI has had phenomenal success growing this business but it is the basis of the industry that makes competition such a significant long- term risk.

There is a $120 billion pharmaceutical company named Sanofi-Aventis which has a product named Rimonabant, a drug which has shown significant promise in trials for the treatment of obesity. The drug also may help manage good/ bad cholesterol, type-2 diabetes, and nicotine addiction. Rimonabant is already being sold in Europe under the name Acomplia and is awaiting FDA approval in the U.S

On Sanofi's scheduled Tuesday morning earnings call, they believe investors should be focused on the success of Acomplia in Britain since its June 28 launch, an update on the launch in six other European countries in mid- October, and an update on FDA approval status in the U.S. The consensus view is that FDA approval will not occur by year-end 2006 as originally projected and could be pushed into early 2007. Given their belief that dieters are quick to try a new magic potion, Stifel believes NTRI investors should pay close attention to news out of Sanofi over the next several months, starting Tuesday.

As an aside, on October 12, the chief pharmacist for Aetna, an insurer of 8.3 million Americans spoke positively about the Sanofi-Aventis diet drug at the 2006 Obesity Congress, raising hopes that the U.S. insurer may include coverage for the drug. Firm believes health coverage for the Sanofi diet drug could make it a compelling alternative to existing uncovered diet programs.

Maintains Hold on NTRI.

Notablecalls: Oh boy! Oh Scott! That's what I call research! I'd be tempted to put out a small short position in NTRI today as the chart seems to be agreeing with Stifel here.

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.

Color on quarter: NTRI, RNOW

- Citigroup is defending NutriSystem (NASDAQ:NTRI) after the co announced its Q2 results last night. Stock traded down 13.5% in after market.

Firm notes stellar 2Q06 results indicate NTRI is in the early stages of its growth cycle. NTRI reported 2Q EPS of 53c and beat First Call consensus by 7c. NTRI had 168k new direct custs vs. guidance of over 155k custs. Importantly, the 2Q conf call revealed NTRI's Men's program could provide a very significant new market opportunity for NTRI (perhaps as big as women's).

The company announced the President/COO George Jankovic would be resigning due to family health issues after nearly 4 years with the company. Thomas Connerty, who has been with the company since November 2004 will serve as Chief Marketing Officer and EVP of Product Development effective July 25, 2006 (CEO Michael Hagan will assume the title of President). Firm notes CEO Michael Hagan will maintain his active role (as he has in the past) in marketing and operations. Overall, they do not view the changes as negative, given Mr. Connerty's background in the diet industry (previously served as Vice President of Direct Marketing at Nautilus) and role in creating and implementing a direct marketing program, which has contributed to NutriSystem's rapid growth over the past two years. Believes Mr. Connerty would make a solid CMO.

Firm is raising their EPS estimates by 27c each in '06-'08, respectively, to reflect the updated guidance and strong trends. Also raising long-term (2006-2010) EPS growth rate to 30% from 29% previously given new EPS estimates.

Tgt goes to $95 from $90. Reiterates Buy.

- While several firms are out cautious on Rightnow Tech (NASDAQ:RNOW) I chose to highlight the ones out in defense. Why? Because historically RNOW has been a bouncing stock.

*Deutsche Bank notes that with shares trading down in the after-market (likely due to excessive investor attention to near-term revenue and EPS guidance), they recommend investors look to RNOW's strong bookings (up 30% in 2Q and 49% YTD) and cash flow (up 168% in 2Q and 123% YTD) to asses business health. And while they acknowledge that an extended average contract length (now 30 vs. 24 months) inflates total bookings, the shift away from perpetual deals (15% of bookings YTD vs. 29% in 1H05) artificially lowers bookings results. Moreover, current bookings growth of 35% YTD illustrates the health in bookings despite a shift toward perpetual deals.

The company confirmed that it continues to hire aggressively with over 20% annual organic growth in quota carrying reps (QCR) at 124 reps and over 100% growth in open employment QCR positions currently. Management reiterated its bookings and cash flow guidance and stated that the pipeline is the best it's ever been.

FCF estimates for 2006 and 2007 are unchanged and they reiterate Buy rating and $22 PT. Using an after-market price of $12.50, shares are trading at 14x '07 FCF estimates (inline with the group). Firm believes these levels are compelling given RNOW's high-growth profile (40-50% bookings growth vs. the group grows in the low-teens).

* JMP Securities notes the bookings miss and lower guidance caused the stock to trade down 22% in the after-market. While the quarter was disappointing, they are not unduly concerned about RightNow's fundamentals. Although the business is lumpy, the firm believes RightNow has an industry leading on demand customer service product, little direct competition and strong free cash flow generation. Free cash flow was $0.13 per share versus estimate of $0.11 and $0.04 per share in the year ago quarter. Maintain their 2006 free cash flow estimate of $0.65 and ups 2007 free cash flow estimate from $0.70 to $0.75, primarily due to a lower assumed cash tax rate. As the on demand comps have fallen significantly, the firm reduces their price target from $23 to $18, representing a 2007 price to free cash flow multiple of 20x, in line with the peer group median.

Maintains Mkt Outperform rating.

Calls of Note Part 4

- JP Morgan is updating their Yahoo! (NASDAQ:YHOO) estimates for 2Q'06 and F'06 due to: 1) strength in the broader search market, 2) stabilized US market share, and 3) improved monetization. Firm's revised 2Q estimates of $1.140B and $0.12 (up from $1.117B and $0.11) are now slightly ahead of the consensus estimates of $1.138B and $0.11.

Recent conversations with search media buyers, including SEM executives at firm's June 16th conference call, coupled with 3rd party data suggests that Yahoo! may have grown its queries more rapidly than had originally anticipated. Additionally, it appears Yahoo! grew its US queries in-line with the market in 2Q.

Checks also suggest that Yahoo!'s monetization is up 1% to 2% compared to the first quarter. Finally, we believe Yahoo! continues to see strong momentum in graphical advertising.

Notablecalls: Expect to see some interest in YHOO following the call.

- Thomas Weisel Partners comments on NutriSystem (NASDAQ:NTRI) noting the co is expected to report 2Q06 results the week of July 24, 2006. Firm remains comfortable with their above consensus 2Q06 estimates for revenue of $121.8mn and EPS of $0.48 (consensus of $123.5mn and $0.46, guidance of $118-122mn and $0.44-0.46). These estimates assume 156K new customers, a conservative 1.3% decline in CAC (versus an 8.3% decline in 1Q06), and an approximate 160bp y/y decline in G&A expense as a percent of revenue. They believe new customer assumptions may prove conservative and see gross margin as a potential source of incremental leverage.

Firm's five-year DCF analysis supports the current valuation, yielding a current fair value of $75.04, while comparable multiples relative to peers suggest a current fair value of $98.81. Taking the straight average of the two valuation methodologies, they arrive at a current fair value of $86.93.

Notablecalls: Looks like an actionable call!

Notablecalls - paperstand

The Wall Street Journals “Heard on the Street” column discusses NutriSystems (NTRI), whose stock is up 60% this year (over 1100% in ‘05). The co’s mkt cap is more than $2bn, trading 10x rev. According to the article, that makes for a pricey stock. NutriSystem is trading at more than 31x this year's estd earnings. That is well above the P/E ratio of 19 for slower-growing Weight Watchers Intl (WTW) and almost double the valuation of the avg stock in the S&P's 500. Even a modest disappointment could hammer the stock. At the same time, a corps of short-sellers is betting on a fall for the co's shares, and insiders have lightened their stakes over the past year. The upshot for investors is that the co's impressive growth could continue for some time, but it is all likely reflected in today's stock price. "It's a tough stock for some ppl because they feel like they've missed it and will look bad if they buy at the top," says Jason Schrotberger of Turner Investment Partners.

Notablecalls: Radioactive stocks, like NutriSystems, may react well on such articles.