MED - Medifast: GLP-1 Fears Are Overblown But Proof Points For Turnaround Are Still Missing
2024-06-26 05:10:56 ET
Summary
- Medifast is a leader in dietary weight management that fell off a cliff since 2022 due to inflationary pressures, the re-opening of restaurants, and the rise of GLP-1 drugs.
- The company's turnaround plan aims to combine OPTAVIA offerings with direct access to GLP-1 medication through a partnership with LifeMD.
- At about $20 per share, Medifast may be in deep value territory, but strong negative momentum and the lack of turnaround proof points make it a HOLD at this time.
- Investors who seek long exposure with an increased margin of safety could consider selling $12.50 MED puts, noting that the company holds over $14 of net cash per share.
Medifast ( MED ) is a leading company in the health and wellness industry, specializing in weight management through a range of portion-controlled meal replacements, snacks, and nutritional products, predominantly sold under the brand OPTAVIA. They operate primarily through a direct-to-consumer model and a network of independent OPTAVIA coaches who provide personalized coaching and support to customers.
Thesis
After years of strong double-digit revenue growth and market outperformance relative to the SP500 and key competitors like WW International ( WW ) and Herbalife ( HLF ), Medifast has suffered material revenue declines since the second quarter of 2022. The combination of inflation, the re-opening of restaurants and travel post lock-downs, and the rise of GLP-1 drugs for obesity have caused demand for dietary weight loss solutions to plummet. Meanwhile, the OPTAVIA coach network, which Medifast still relies on heavily for revenue generation, got decimated in the process. It is down to 37,800 coaches at the end of Q1 2024, from 68,000 back in Q2 2022.
With a market capitalization around $210 million and an enterprise value of just over $50 million, MED stock is very much priced for disaster. In this article, I discuss in detail why I do not think that GLP-1 drugs will be the end of dietary weight loss plans, and why at the same time, uncertainties about the viability of Medifast’s business model continue to fuel the stock’s downward spiral, although fears seem overblown....
Medifast: GLP-1 Fears Are Overblown, But Proof Points For Turnaround Are Still Missing