Lose Weight, Make Money With These Stocks

BOSTON (TheStreet) -- The new year is prime time for making resolutions, and none is more popular than losing weight.

The industry is well aware of that, so the media are stuffed with ads at this time of year. For example, the now-svelte pop diva Mariah Carey is singing the praises of a New Year jump-start program for Jenny Craig, after a 30-pound, post-pregnancy slim-down.

Not to be outdone, competitor NutriSystem (NTRI) is attempting to appeal to men, a fast-growing segment of the weight-loss market, by recently naming former Pittsburgh Steelers quarterback Terry Bradshaw a spokesman.

And that shines the light on what is now an estimated $60 billion industry, which ranges from pre-packaged meals in supermarkets or shipped directly to homes, local or Internet-based group meetings, to individualized consulting.

This business has huge potential, given the fast-growing rate of obesity and the health problems it brings, including heart disease and diabetes. According to government statistics, two-thirds of Americans are overweight. Americans tend to gain one pound during the holiday season, which while slight, adds up over the years because the weight isn't lost during the rest of the year, according to the National Institutes of Health.

Some investors are aware of the opportunity as the industry leader, Weight Watchers International (WTW) , has seen its shares rise 51% this year. Weight Watchers claims it has 1.7 million paid online subscribers.

Another leading player, besides Weight Watchers and NutriSystem, is Nestle (NSRGY) , one of the world's largest food companies, through its Jenny Craig unit.

Here are summaries of the three leading publicly traded weight-loss companies and their outlook:

Weight Watchers International (WTW)

Company profile: Weight Watchers, with a $4 billion market cap, is the largest provider of weight-management programs and has about a 3% market share.

Morningstar says "consumers buy more than $4 billion of Weight Watchers-branded products each year, and every week approximately 1.8 million people attend Weight Watchers meetings worldwide. (The company) has begun to monetize its brand reputation further by licensing its name and nutritional ratings to reputable food producers and restaurants," which has great growth potential.

Although sales have been hurt by the recession, S&P says "we look for 2011 sales growth of about 26%, paced by WTW's online site."

The company generated revenue of $1.5 billion in 2010 and was at $1.4 billion through the end of the third quarter so will easily beat that and set a record this year. Analysts' consensus earnings estimate for 2011 is $4.10 per share, up from $2.56 per share last year.

Share performance: up 51% this year; it has a 10-year annualized return of 6%.

Analysts' take: S&P has its shares rated "hold," but it has a $67, 12-month price target on it, a 20% premium. The investment firm Westend SA of Luxembourg owns 52% of its shares. Fidelity has a 12.4% stake, making it its second-largest investor. Its holding is double that of the next biggest investor.

NutriSystem (NTRI)

Company profile: NutriSystem sells weight-loss products and services directly to the consumer through nutrisystem.com, by phone and at select retailers, and arranges home delivery of its products.

NutriSystem is a small-cap company, with a $376 million market value. Revenue last year was $509 million and earnings were $1.13 per share, but it looks like it will fall short of both this year, given the results through the third quarter.

Share performance: down 33% this year, including a gain of 9% in the past three months; it has a 10-year average annualized return of 47%.

Analysts' take: According to S&P, NutriSystem has four "buy" ratings and one "hold." It has 83% institutional ownership, led by Royce Low-Priced Stock Fund (RYLPX) , which owns 6.7% of its shares, more than double that of the next largest shareholder.

Nestle (NSRGY)

Company profile: With a market value of $190 billion, Nestle is the largest food and beverage company in the world, so its Jenny Craig weight-loss business, with revenue estimated at $462 million last year, is but a small portion of its annual sales.

The Swiss company's product portfolio includes the internationally recognized brands Nestle, Nescafe, Perrier, Gerber, Poland Spring and Pure Life. Nestle's Nutrition unit acquired Jenny Craig from its founders in 2006.

Share performance: up 1% this year; 15-year annualized return of 13.5%.

Analysts' take: Credit Suisse (CS) has its shares rated "neutral." Nestle gets no other Wall Street analyst coverage. Morningstar has a $57 "fair value" on its shares, which are now trading at about $58.

Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

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