Why Weight Watchers (WTW) Stock Is Soaring Today

NEW YORK (TheStreet) -- Weight Watchers  (WTW) stock is surging by 21.35% to $23.50 on heavy volume following the Christmas Eve debut of the company's 60-second commercial featuring media mogul Oprah Winfrey.

Yesterday, Winfrey tweeted the video advertisement to her more than 30 million followers.

Earlier this year, Winfrey took a 10% stake in the beleaguered company and shares consequently surged. She has joined the board as well and agreed to be featured in advertisements.

The commercial is Winfrey's first advertisement for Weight Watchers. In it she explains why she joined the program. 

Since beginning the Weight Watchers program in August, Winfrey has lost 20 pounds.

Additionally, shares of Weight Watchers might be benefiting from a phenomenon referred to as New Year's Resolution trade. Some investors contend that shares of companies that cater to New Year's resolutions, such as weight loss, receive a year-end boost.

However, Weight Watchers stock has declined by an average 1.2% and median 0.1% the last five trading days of the year for the past 10 years, suggesting that it is not impacted by New Year's Resolution trade, according to Barron's.

About 10.95 million shares of Weight Watchers have been traded so far today, well above the company's average trading volume of roughly 2.5 million shares per day.

Separately, recently, TheStreet Ratings objectively rated this stock according to its "risk-adjusted" total return prospect over a 12-month investment horizon. Not based on the news in any given day, the rating may differ from Jim Cramer's view or that of this articles's author. TheStreet Ratings has this to say about the recommendation:

We rate WEIGHT WATCHERS INTL INC as a Sell with a ratings score of D+. This is driven by a number of negative factors, 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, weak operating cash flow and generally disappointing historical performance in the stock itself.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • WEIGHT WATCHERS INTL INC's earnings per share declined by 43.3% in the most recent quarter compared to 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 $1.74 versus $3.63 in the prior year. For the next year, the market is expecting a contraction of 57.5% in earnings ($0.74 versus $1.74).
  • Net operating cash flow has significantly decreased to $26.57 million or 64.93% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 31.13%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 43.28% 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.
  • The change in net income from the same quarter one year ago has significantly exceeded that of the Diversified Consumer Services industry average, but is less than that of the S&P 500. The net income has significantly decreased by 42.5% when compared to the same quarter one year ago, falling from $37.89 million to $21.79 million.
  • The revenue fell significantly faster than the industry average of 13.3%. Since the same quarter one year prior, revenues fell by 20.8%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • You can view the full analysis from the report here: WTW

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