WW International (WW) - Get Report was upgraded to overweight from equal weight by a Morgan Stanley analyst who believes the weight management company's value proposition will be stronger after the coronavirus subsides than it was before the pandemic.
Shares of the New York-based company, formerly known as Weight Watchers International, were falling 10.8% to $15.06.
Analyst Lauren Cassel, who lowered her price target to $24 a share from $37, said in a note to clients that "undoubtedly, WW's business is being negatively impacted in the short-term by Covid-19."
WW International said on March 14 that it had paused all in-person workshops until April 4, though Cassel said she expects this date to be extended and the company will switch to virtual workshops.
Data from analytics platform SensorTower's app "suggest new subscriber growth has fallen precipitously, over the past 14 days, as to be expected given the sudden and drastic changes occurring in consumers lives," Cassel said.
"However," she said, "once the 'cocoon' phase ends and shelter in place measures are raised, we see WW as a potential beneficiary of changes in consumer behavior. We anticipate a heightened focus on health, wellness, and weight loss after weeks of gym closures, stress eating, and limited physical activity."
In addition, Cassel said, "the extent to which existing subscribers are currently showing greater interest and spending more time engaging with the app during the cocoon phase could lead to better retention curves for these subscribers over the medium term, which we incorporate into our $47 Bull case valuation."
"Bottom line, we think WW's value proposition is actually stronger post Covid-19 than it was before," Cassel said.
The analyst warned that should the coronavirus recession be deeper and longer than economists are currently forecasting, "wide unemployment and a depression like environment could cause consumers to cut off any non-essential purchases and subscriptions, weighing on WW churn and subscriber numbers."