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.

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