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Weight Watchers Strategy Shift Makes Shares a Buy at Jefferies

WW International shares were initiated buy with a $32 price target at Jefferies as the company evolves from just dieting services to a wellness provider.
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Shares of WW International  (WW)  jumped on Wednesday after analysts at Jefferies initiated coverage of the weight-loss-services company with a buy rating, citing the wellness trend amid the coronavirus pandemic. 

Analyst Stephanie Wissink says the company has evolved from just a dieting company and is now firmly invested in a personalized wellness business concept.

The covid-19 health crisis "unlocked a durable trend: Wellness is being prioritized, supporting superior growth potential," Wisnick wrote. 

Weight Watchers' shift toward consumer health increased its total addressable market to $300 billion from $18 billion.

"Covid-19 has heightened awareness re: physical, mental and emotional well being while also reinforcing the need for human connection and brand purpose," the analyst wrote. 

"We are intrigued by WW's position as an accessibly priced, leading digital solution for individuals who seek and will pay for an integrated wellness lifestyle platform."   

Still, Wissink notes that established brands with modern platforms are advantaged given their scale, with the resources to acquire and retain customer relationships and ability to develop unique content. 

Jefferies set a $32 price target on the shares, based on a 14.5-times multiple of its 2021 earnings estimates of $2.20 a share. That compares with a five-year average of 16.1 times future earnings. 

"Even unprofitable digital models trade at 10 times to 15 times higher multiples vs. physical consumer retail; we see multiple expansion as a secondary driver of price appreciation," Wissink said. 

WW International shares at last check jumped 9.7% to $25.76. They've traded up as much as 14% on Wednesday.