Davidson cautious on Weight Watchers Q4, but sees near 'rock-bottom' valuation
DA Davidson analyst Linda Bolton Weiser left a meeting with Weight Watchers CEO Mindy Grossman and CFO Nick Hotchkin "cautious" on the company's Q4. After a "sub-optimal" September, trends made a come-back in October and November, but it was a "negative indicator" when Oprah tweeted the Share the Gift of Health promotion on December 4, Bolton Weiser tells investors in a research note titled "Nearing 'Rock-Bottom' Valuation, In Our View." However, when Weight Watchers reports in February, investor attention will be on the 2019 outlook and not the Q4 results, adds the analyst. And she notes that Grossman was adamant that the power of the 2019 campaign will be stronger than in 2018. Bolton Weiser believes her 2019 revenue growth estimate of 12% is reasonable and that a share catalyst is coming "very soon" as the company expects to announce new major celebrity spokespeople in the U.S. and U.K. in the coming weeks. She believes the stock, at 10.2 times 2020 earnings estimates, is getting "quite close to rock-bottom valuation," which would be $39. The analyst keeps an Outperform rating on the shares with a $137 12-18 month price target.