Weight Watchers International Inc. was upgraded from underperform to buy at Bank of America Merrill Lynch on subscriber numbers stabilization in the second quarter and a user-driven 2020 program that leaves analysts bullish.
Bank of America raised its price target to $27 from $25.
WW WW, +1.94% announced second-quarter earnings late Tuesday, which included an increase in the full-year earnings outlook to between $1.55 and $1.70 per share. The FactSet consensus is for $1.52 per share.
WW ended the quarter with 4.6 million subscribers, up from 4.5 million last year.
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Shares soared more than 40% in Wednesday trading, putting WW on the path to the biggest one-day percentage gain since October 2015.
Bank of America analysts led by Olivia Tong still see risks in WW, including competition from other apps and programs.
“However, after much volatility and several misfires, we think WW is getting back on track, re-engaging their consumers and better communicating the significant changes made in 2018 that alienated some,” Bank of America wrote. “A new program for the post-holiday recruitment drive should drive renewed interest amongst previous members and attract new (never) members as well in our view.”
WW Chief Executive Mindy Grossman would only say that the new innovation will offer a fresh way to follow the program, and is based on lessons from the WW Freestyle program along with new scientific research.
“We believe our 2020 innovation will appeal not only to our current members who love the flexibility of WW Freestyle but also to potential first time and returning members who are looking for a more personalized program that provides the structure and support for sustainable results,” she said, according to a FactSet transcript.
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“In addition to conducting clinical trials to verify efficacy, the innovation has undergone extensive consumer testing to ensure we’re delivering a program that fits the needs of even more people.”
UBS analysts are keeping a wary eye on WW, as the subscriber growth was still a deceleration on a two-year stack and was likely helped by some discounting.
Still, WW says the third quarter is off to a good start and fall advertising should give the business a bump, said UBS.
“However, the true test will be the reception of its new program at the end of the year,” analysts said. “We think the market will reward WW for its progress in Q2, but it’s unlikely to give it full credit for a successful program launch until it provides evidence that its subscriber growth is sustainable,” the note said.
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UBS rates WW neutral with a $26 price target, up from $23.
“[W]e agree that the new diet program launch should drive recruitment and earnings growth next year,” wrote JPMorgan analysts. “That said, we continue to believe that investors should remain on the sidelines until getting more clarity around the key differences in WW’s new program, given the increasing intensity of the competitive environment.”
JPMorgan rates WW stock neutral with a $27 price target, up from $22.
WW stock has lost 61.8% for the past year while the S&P 500 index SPX, +1.64% is up 2.5% for the period.
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