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Why Weight Watchers (WTW) Is Being Decimated

NEW YORK (TheStreet) -- Weight Watchers (WTW) warned of a difficult year ahead as it capped off a weak 2013, causing shares to plummet on Friday.

By midmorning, shares had unloaded 26% to $22.62. Trading volume of 4.2 million was more than three times its three-month daily average.

The weight-loss services provider said it expects fiscal 2014 earnings between $1.30 and $1.60 a share, half analyst consensus. According to Thomson Reuters, expectations were for per-share earnings of $2.78.

"While we are confident that we are on the right track to execute a successful transformation, 2014 will be a very challenging year," said CEO Jim Chambers in a statement.

Credit Suisse reiterated the stock as "neutral" but downwardly revised its price target to $24 from $31.

"The lower-than-expected guidance ... highlights that the ongoing structural challenges persist, as the competitive dynamic continues to evolve unfavorably, which is pressuring WTW's business model," wrote analyst Glen Santangelo in a research report.

"Early 2014 marketing efforts designed to re-engage consumers seem to be struggling to gain traction in the face of an intensifying competitive environment characterized by the proliferation and improvement in free weight-loss online/mobile applications & fitness monitors."

Similarly, Wedbush Securities maintained a "neutral" rating but cut its price target to $19 from $26.

"Given Weight Watchers' strong brand name and attractive cash flow, offset by its high debt load and sluggish trends, we believe shares should trade at an EV/2014E EBITDA multiple of 11x, relatively in line to other mid-cap healthy lifestyle firms (GNC, HAIN, UNFI, VSI)," wrote analysts in the report.

"We are sharply lowering 2014 estimates to reflect current trends and introducing 2015 estimates for revenue of $1.3 billion and EPS of $1.50, reflecting lower membership base entering the year, offset by a lower cost structure."

Also See: Weight Watchers Reports Fourth Quarter

TheStreet Ratings team rates WEIGHT WATCHERS INTL INC as a Hold with a ratings score of C. The team has this to say about their recommendation:

"We rate WEIGHT WATCHERS INTL INC (WTW) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its expanding profit margins and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself and feeble growth in the company's earnings per share."

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