Weight Watchers International, Inc. (NYSE:WTW)

CAPS Rating: 3 out of 5

A consumer company, which provides weight-loss services around the world. It conducts business through a combination of company-owned and franchise operations.

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Member Avatar Haugurafpeningum (83.83) Submitted: 4/7/2014 2:15:50 PM : Outperform Start Price: $20.50 WTW Score: +1.34

Betting on a turnaround.
Stock Down 75% from its hights.

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Member Avatar TrackMagicFormul (92.65) Submitted: 3/19/2014 2:42:16 PM : Outperform Start Price: $20.76 WTW Score: +1.98

Investors should consider selling puts. You can achieve some very high annualized returns at strikes significantly below the current price. e.g.

Jul 14 $17.50 strike at $1.30 has 21% discount and 22% annualized return.

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Member Avatar BUbulldog (64.09) Submitted: 2/18/2014 2:48:34 PM : Underperform Start Price: $21.31 WTW Score: +2.36

The mindset of this company is archaic. They are clinging to meeting revenues as their primary revenue source, while free mobile apps begin to run circles around them. Have a visit to one of their meetings...what will you see? A room full of women, not a single person under the age of 40. Try to purchase product from their retail stores or website: Not permitted unless you're a member. As opposed to taking a handful of cash from a willing customer, they turn you away in hopes you'll come crawling back to attend a meeting. They are missing out on millions in retail/web revenue.

2015 EPS cut to ~$1.60 per share, or half of what it was in '14. No light at the end of the tunnel for this dinosaur. Until this company comes to grips with the current day environment (mobile apps, technology, and today's generation of weight losers), the price target on WTW is mid teens at best.

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Member Avatar AnsgarJohn (99.10) Submitted: 2/14/2014 10:24:54 AM : Outperform Start Price: $22.91 WTW Score: -9.68

Pick at $23 cash flow baby Weight Watchers

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Member Avatar Hugz (39.11) Submitted: 2/5/2014 10:12:31 AM : Outperform Start Price: $28.64 WTW Score: -33.48

Has been battered over the past year, down around 45%, even though the stickiness of its product has not slowed--this still serves as the most adherent weight-loss program in America, Land of the Obese.

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Member Avatar StewpotDrew (31.86) Submitted: 2/2/2014 11:55:36 PM : Outperform Start Price: $28.67 WTW Score: -31.43

Undervalued

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Member Avatar shamapant (80.84) Submitted: 1/29/2014 11:49:32 PM : Outperform Start Price: $27.33 WTW Score: -27.29

Getting killed for short-term enrollment troubles, but the declines are still leaving an extremely profitable company. Enrollment declines will likely be short term...if you plan to hold for 5 years, you should be in the clear as high normalized earnings will save this company.

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Member Avatar anne2013 (< 20) Submitted: 1/21/2014 11:12:44 AM : Outperform Start Price: $28.89 WTW Score: -28.94

Obesity rates are obscenely high. Weight watchers is evidence based - meaning research shows it works and is highly effective unlike many fads. It is a healthy way of losing weight and most health care professional and health insurance companies endorse it

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Member Avatar JohnCLeven (82.40) Submitted: 11/11/2013 11:22:05 AM : Outperform Start Price: $33.67 WTW Score: -42.73

This pick is a little different than my usual picks in that it’s more of a medium term pick than a long-term pick. It’s also a bit more of a Ben Graham style cigar butt style than the Buffett “wonderful business.” (Though WTW does have a few wonderful elements)

Over the past five decades, Weight Watchers (WTW) has become one of the most recognized names in the weight loss industry. WTW’s known for their group meetings and support systems (globally about 40,000 Weight Watchers meetings take place per week) which utilizes the social proof principle in a way that few other companies have been able to match. (Tupperware might be one of the few that have surpassed WTW in this regard) WTW also receives royalties from licensing out its brand name to companies such as Applebee’s, General Mills, Kraft, and Yoplait. They also have a rapidly growing online business. (Though free mobile apps are a constant threat.)

In a wider view, WTW takes advantage of increasing obesity around the world, but particularly in the USA, Europe, Australia, and New Zealand. Per 9/23/13 executive summary, over the past decade, Weight Watchers (WTW) has grown market share from 18% to 43% of the US weight loss service industry. This time period has included the largest recession in history.

The core weekly meeting business, royalties, and local franchising fees (which make up roughly 75% of the profits are essentially stagnant (as in they’re not really growing, or shrinking)
However, the website portion of their business is rapidly growing, having tripled in the past 5 years (roughly 28% annualized growth) and now make up about 25% of the profits. The web profits should continue to grow in the future. Although WTW faces competition, it’s fascinating that WTW’s business model is somewhat unique at that none of WTW’s competitors really do directly what WTW does.

The company has significant debt, which they have used to buy back stock at a compounded annual rate of about 6.5% per annum over the past decade. Considering that WTW’s average interest rate on their long-term debt is 3.43%, and the average return on tangible assets has been over 20% over the past 5 years (which is better than 95%-98% of companies with mkt cap over 1B) I would like them to buy back as many shares as they responsibly can. Also, they cut the dividend, which I think is actually a good thing. (I usually prefer buybacks to dividends)

I expect this equity to outperform NOT because I believe they will have rapid organic growth (they won’t), but because I think they are an undervalued, highly profitable business with low capital intensity, with fairly reliable surplus cash flows, that consistently buy back shares. (And hopefully will buy back A LOT at these low levels.)

Per the 10-K, it is important to note that WTW is NOT likely to be acquired due to an unusual corporate structure, and majority stake held by Artal Group.

As far as the price goes, WTW is down roughly 56% in the past 18 months. The company has earned $282M, in free cash flow in the TTM, and with a $4.11B EV, you’re looking at a FCF/EV yield of 6.86%. I expect buybacks to increase that yield over time. Though it’s less meaningful for a company like WTW, it can be noted that the current PE is 8.

Similar to some of my other picks, this seems to be one of those wonderfully asymmetrical bets where if you flip heads, you have a home run, and if you flip tails, you’ll still do ok.

This will be an interesting contrarian pick I think, and is not a real life holding.

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Member Avatar Chemdawg (81.57) Submitted: 9/14/2013 1:28:32 PM : Outperform Start Price: $37.69 WTW Score: -53.20

no shortage of fat people here...and the P/E is not going to go much lower....solid dividend and an extremely high margin business model ...hold until they conduct another "share buyback" which typically results near the top of the market for some reason.

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Member Avatar NovaTodd (85.03) Submitted: 8/30/2013 10:11:09 AM : Outperform Start Price: $36.27 WTW Score: -55.72

WTW generates large amounts of surplus cash thanks to its asset-light business model; unfortunately, the majority of this FCF will likely go towards paying down a heavy debt burden incurred last year to fund a repurchase of shares at premium prices. This will, however, cause the EV/EBITDA multiple to compress unless the equity increases by a commensurate amount. The equity is currently valued at just under 8 times normalized free cash flow, so there is room for growth.

Revenue from the online business grew 26% from 2011 to 2012, and there's been steady growth in this segment dating back to 2008. Since margins are considerably higher in the online segment, growth in this space should be more than enough to offset any further declines in meeting attendance. As a result of this growth, I do not expect EBITDA to decline over the next several years, nor do I expect the market to assign a lower multiple than today's ~8x, since this is at the low-end of the company's historic valuation. This leaves an increase in share price as the most likely mechanism for maintaining today's EV/EBITDA multiple; the possibility for multiple expansion towards a more normalized 10x gives the shares additional upside.

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Member Avatar rknapton (< 20) Submitted: 8/26/2013 7:59:36 PM : Underperform Start Price: $36.18 WTW Score: +55.37

Short. Weightwatchers is failing in their performance. Revenues down. Tons of debt. Alexa ranking is down 818 spots from 3 months ago to 3071. Cheap valuation is just a value trap.

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Member Avatar cmrk3 (56.21) Submitted: 8/19/2013 11:54:52 AM : Outperform Start Price: $36.26 WTW Score: -54.44

There are many obese people now-a-days and Weight Watchers works pretty well. It is sensible. Right now they mainly reach fat women, so if they can break through to fat geeky men their stock will go up. Presently their stock is down, so it is a good time to buy.

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Member Avatar elkwingcaddis (92.40) Submitted: 8/1/2013 2:28:46 PM : Outperform Start Price: $57.86 WTW Score: -100.71

Winner of Best Diet from US News World Report three years in a row. WW has a proven formula that works AND focuses on their plan as a life change and not just a diet. The business model is great AND insurance companies are starting to see the value in healthy weight loss programs. (My company currently offers a 50% discount.) This is a great long-term buy and fold incestment.

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Member Avatar MotleyArt (38.95) Submitted: 5/21/2013 4:08:45 PM : Outperform Start Price: $47.57 WTW Score: -67.30

Stock is rebounding.

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Member Avatar nickclaud (31.60) Submitted: 3/26/2013 12:30:46 PM : Outperform Start Price: $40.60 WTW Score: -68.07

Once the US economy recovers, revenue will return to normal levels

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Member Avatar Orthonormal (94.90) Submitted: 3/4/2013 12:26:46 PM : Outperform Start Price: $41.00 WTW Score: -71.81

Magic formula pick

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Member Avatar IsaCann (< 20) Submitted: 1/3/2013 6:08:13 PM : Outperform Start Price: $55.85 WTW Score: -90.21

There will be more than cultural pressure to reduce obesity rates in the US in upcoming years. Insurance companies will demand it. And the Government will silently support any such efforts in the background. Though there is plenty of money to be made from people getting fatter, the most powerful entities, with the most aggressive lobbying machines will rule, helping businesses like WTW grow in the next decade.

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Member Avatar bkzl (< 20) Submitted: 8/8/2012 11:16:40 AM : Outperform Start Price: $43.69 WTW Score: -74.83

Obesity will only grow into a larger problem (pun intended) as time goes on. Nevermind the severe secondary effects - diabetes, high blood pressure, joint pains. It's online business will continue to grow and I believe capture more of the face-to-face users. They've had some slow down in revenue but I think even if management doesn't foul up what they have in place now, moving forward it's still a good value.

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Member Avatar wtcrane1 (94.17) Submitted: 7/20/2012 3:15:19 PM : Outperform Start Price: $50.99 WTW Score: -95.49

High moat, low valuation, obesity epidemic.

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