By now, 80% of New Year’s Resolutions have been broken. Those new shoes you bought to go running have been mothballed in the closet. You started to get your “money situation” in order but you stopped when you figured out you were going to owe money in taxes, so you’re waiting to file. You haven’t really been nicer to any of your coworkers and your dog hasn’t been on a walk in weeks. Now Ash Wednesday passed and you’re working on something else; Giving up McDonald’s for Lent. The company that tried to get you started on your weight loss goal by giving you an easy point system to follow is our Bear of the Day.
Weight Watchers (WTW) is a Zacks Rank #5 (Strong Sell) trapped inside of a miscellaneous consumer services industry that ranks in the bottom 11% of our Zacks Industry Rank. In the last 30 days five analysts have revised earnings projections downwards for the current year, cutting consensus in half from 2.85 to 1.41. The price and consensus chart shows the downward sloping earnings trend since early 2012. Last month’s revision was the nail in the coffin for a stock that has seen price drop from $80 to $20 in the last two years. All this occurring in a stock market that has continually pressed forward to new highs. This is almost the exact opposite story of what had been happening for Weight Watchers in 2010. Steady earnings growth and upside revisions helped propel the stock into the stratosphere. It’s amazing how earnings can shift a stock’s trajectory so quickly.
The technical picture is bleak as you may imagine. Since trading in the $80s two years ago, the stock has gradually sold off month after month with very little in the way of retracement. I can’t find a price level that has a compelling support story behind it. The 25 day moving average shifted by 5 has been a firm ceiling on the stock since October 2013. It seems that with each earnings report the stock gets hammered more and more. The only bit of saving grace comes by the fact that stochastics here are in extremely oversold condition so perhaps the stock will get a bit of a reprieve.
If the stochastic bullish cross is enough to give short term strength to the stock, the firm cap set in by the 25x5 sits around $25. The stock would need to push past this mark in order to provide any technical evidence of strength returning. Given the fact that earnings have been sliced in half I wonder if investors will have enough faith to stick with the plan.