NTRI (Nutrisystem, Inc.): New Year,
NuMi
By: Robert Uhland, Student Analyst at
Marquette University
Disclosure: The AIM Equity Fund
currently holds this position. This article was written by myself, and it
expresses my own opinions. I am not receiving compensation for it and I have no
business relationship with any company whose stock is mentioned in this
article.
Summary
•
Opportune New Frozen Warehouse in Illinois to provide the backbone for
forthcoming operational and logistical efficiencies.
•
Strong momentum generated by advances in program features and a sundry product
selection with the progression of NuMi and concurrent
launches of both the DASH diet and Turbo 10 in late December 2015.
•
Synergies from recent acquisition of South Beach Diet Brand lend to key Direct
and Retail Channel growth initiatives moving forward.
•
Proclivity towards obesity is set to rise significantly moving out to 2020 and
on with billions of dollars consumed each year in an attempt to curb this trend.
•
Novel Shake 360 offering provides conduit through which to expand NTRI’s Health
and Wellness Segment.
•
The newly minted management has fixed declining top and bottom line growth
spurning nine consecutive quarters of revenue growth through a multitude of
levers.
Nutrisystem, Inc. (NYSE:NTRI) has the ability to deliver sustainable
double-digit growth for the next few years through its differentiated value proposition
and rapidly expanding retail footprint. Currently, trading at $19.60, NTRI
offers a remarkable opportunity and entry point through which to penetrate an
industry set to grow exponentially moving forward. NTRI has been able to
maintain an edge over its competitors like Medifast, Weight Watchers, and
ConAgra Foods in the weight loss industry due to its ability to be a
market-altering, trend aware business with significant capital put forth into
sustainability.
With
overweight and obesity rates set to rise significantly (2020 estimates: 80% of
males, 70% of females, and 20% of children) and health spending destined to
increase, NTRI seeks to alleviate the associated risks by invigorating the
consumer weight loss experience through its differentiated products and
services. Additionally, the company’s new warehouse expansion increases its
capacity by 60% and enhances customer satisfaction with 99% of customers
expected to receive orders within 2 business days versus the prior 80%. Furthermore,
the acquisition of South Beach Diet Brand in December 2015 aligns well with
NTRI’s intent to ramp up SKU counts, strengthen Direct and Retail brand
exposure, and intensify efforts toward Type 2 diabetes.
The
weight loss industry remains largely untapped, with rates only set to rise
moving forward. Introductions of the Shake 360 initiative, the first probiotic
nutritive shake offering by the company, and Turbo 10 are poised to capture
significant market share for NTRI following suit with the diet season as we
head into the spring and summer months. Driven by robust growth, I am confident
in the newly minted management to soar to new heights.
What
has the stock done lately? Over
the past three months, NTRI is down 12.48% and has taken a hit in a depressed
weight loss industry. The company reported Q4 2015 earnings on February 25th,
coasting in line with earnings and beating on revenues. For FY 2015, NTRI revenues
increased by 15% year-over-year and earnings hiked up by 35%. As of recent
however, investors are spooked due to soft guidance for Q1 2016, but I expect
the stock to rally off NTRI’s brilliant management propelling pioneering
services, coupled with positive FY 2016 guidance with projected revenue and
earnings beats.
Source: FactSet
Past Year Performance: Over the past year NTRI is up 6.53% and
is down 9.57% YTD. Thrust by its compelling brand presence in the weight loss
industry, NTRI has delivered supreme numbers over its peers. The company has
taken the brunt of the Weight Watcher’s downfall over the past three months;
however, with Oprah as the spokeswoman for Weight Watchers this should prove to
be a positive halo effect for the weight loss industry as a whole.
Source: FactSet
My Takeaway
With
obesity set to reach record highs moving forward to 2016 and on, coupled with
record highs in consumer confidence, spending, and disposable income, and
topped with exceptionally depressed oil prices, NTRI is in a position to
generate favorable returns. As NTRI heads into this diet season, I anticipate the
price to trend up to around mid-$24 range or higher. The company has shown
superior numbers since management was rescinded in 2013, with top and bottom
line skyrocketing by +26% and +99% respectively.
You should hitch up with Nutrisystem
before the company takes flight over its peers led by macros that are poised to
exponentially increase and exhaustive expansionary efforts on the verge of
coming into fruition. With a strong track record of beating earnings fueled by
a brilliant management team, substantial organic and inorganic growth
opportunities, and strong tailwinds levered through a multitude of strategic
partnerships in both Direct and Retail, I strongly believe that NTRI is
undervalued and is trading at a discount. I foresee the company continuing to
grow moving forward as NTRI continues to capture market share, improve margins
through efficiencies with the expansion of warehouse capacity, and expand its
strategic initiatives and robust product line. Taking into consideration the
aforementioned drivers, I feel that NTRI is an overlooked growth play in a
groomed weight loss industry.
