NEW YORK (TheStreet) -- Shares of Weight Watchers Int'l. (WTW) - Get Report fell 7.31% to $9.39 in pre-market trading today as Credit Suisse downgraded the company to "underperform" from "neutral" and cut its price target to $5 from $14.
"In the wake of the recently issued 2015 guidance, it has become increasingly apparent that the product and marketing changes employed by the company for this January weight loss season were less effective than expected," Credit Suisse said.
Management continues to believe the company's strategy of increased consumer engagement is the right track, but acknowledged execution around January 1 could have been better, analysts noted.
Credit Suisse has revised their forward estimates, taking a more conservative view with respect to revenue, EBITDA and earnings.
With the continued deceleration of EBITDA and cash flow, investors have placed increased emphasis on the debt load and upcoming scheduled payments in the firm's view.
Analysts believe going into "cost-cutting mode" will limit the company's flexibility and make it increasingly difficult to navigate the competitive landscape.
Accordingly, Credit Suisse reduced their 2015 and 2016 EBITDA estimates to $233 million and $220 million from $234 million and $232 million, respectively, and introduced 2017 estimates of $202 million.
Given the "limited visibility" into WTW's ability to navigate the competitive landscape amidst its significant leverage, and views around the earnings outlook and valuation, Credit Suisse downgrades.
Separately, TheStreet Ratings team rates WEIGHT WATCHERS INTL INC as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation:
"We rate WEIGHT WATCHERS INTL INC (WTW) a SELL. This is driven by several weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its feeble growth in its earnings per share, deteriorating net income and generally disappointing historical performance in the stock itself."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- WEIGHT WATCHERS INTL INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. Earnings per share have declined over the last two years. We anticipate that this should continue in the coming year. During the past fiscal year, WEIGHT WATCHERS INTL INC reported lower earnings of $1.72 versus $3.63 in the prior year. For the next year, the market is expecting a contraction of 65.1% in earnings ($0.60 versus $1.72).
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Diversified Consumer Services industry. The net income has significantly decreased by 152.3% when compared to the same quarter one year ago, falling from $30.80 million to -$16.10 million.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 51.76%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 151.85% compared to the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
- WTW, with its decline in revenue, underperformed when compared the industry average of 10.4%. Since the same quarter one year prior, revenues fell by 13.3%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- The gross profit margin for WEIGHT WATCHERS INTL INC is rather high; currently it is at 54.73%. Regardless of WTW's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, WTW's net profit margin of -4.91% significantly underperformed when compared to the industry average.
- You can view the full analysis from the report here: WTW Ratings Report