Medifast (MED) Banks on OPTAVIA Strength Amid Cost Woes
Medifast, Inc. MED looks well-placed for 2023 due to the strength of its OPTAVIA lifestyle solution and coaching support system. Also, the company is committed to enhancing its scale via better organizations, systems, processes and alliances.
However, Medifast’s gross margin has been contracting year over year for the past few quarters. Management curtailed its 2022 guidance due to the impact of macroeconomic volatility and increased inflation in customer acquisition.
Shares of this Zacks Rank #3 (Hold) company have declined 38.3% in the past six months against the industry’s growth of 5.2%.
MEDIFAST INC Price, Consensus and EPS Surprise
MEDIFAST INC price-consensus-eps-surprise-chart | MEDIFAST INC Quote
Key Upsides
Given the evolving consumer interest in health and wellness, MED’s OPTAVIA lifestyle solution and coaching support system bodes well. OPTAVIA follows a holistic approach by focusing on six key areas of a human being, namely weight, eating and hydration, motion, sleep, mind and surroundings. Further, OPTAVIA combines scientifically-proven programs, effective products and guidance from its coaches to help consumers lead a healthier lifestyle.
The total number of active earning OPTAVIA Coaches rose 8.5% year over year to 66,200 in the third quarter of 2022. Hence, the relevance of the company’s offerings amid an environment where consumers are choosing health and wellness options has been an upside. Medifast’s constant focus on developing tools and programs to increase the efficiency of coaches has been yielding results.
Medifast is focused on its strategies aimed at driving long-term growth. These include driving product and program innovation, expanding segments and geographies, improving coach and client experiences, utilizing deeper data and insights and optimizing operational effectiveness. Concerning these strategies, Medifast focuses on new and compelling products and programs.
Further, MED undertakes a systematic approach toward global markets and product adjacencies. On its third-quarter 2022 earnings call, management highlighted that it remains confident about delivering long-term growth, with average annual revenue growth of 15% and an operating margin of 15%.
Medifast has been undertaking several measures to drive growth. It has been speeding up its long-term supply-chain efforts to ensure that it is able to manage the expected growth in the next few years. To this end, Medifast is focused on optimizing and increasing capacity by strengthening its network of co-manufacturers.
Also, Medifast is focused on making technological and infrastructural investments, as part of which it opened a new technology center in Utah in 2020 beginning.
We note that OPTAVIA Coaches have been focused on utilizing technology, including the company’s app-based platforms, along with social media channels and field-led training platforms. MED’s constant investments in digital tools and its new, fully integrated mobile apps are likely to enhance the connection between clients and coaches. Also, it is likely to result in increased efficiencies, which will help OPTAVIA Coaches cater to more clients.
Downsides
Medifast’s gross margin has been contracting year over year for the past few quarters. In the third quarter of 2022, Medifast’s gross profit fell 7.9% to $282.8 million, mainly due to a decline in the number of customers supported by each Coach and escalated product costs resulting from increased raw ingredient, shipping and labor costs.
The gross profit, as a percentage of revenues, came in at 72.5%, down from the 74.3% reported in the third quarter of 2021. The adjusted income from operations declined 10.7% to $49.2 million. As a percentage of revenues, the metric fell 70 bps to 12.6% year over year. The continuation of these trends remains a concern.
Management now anticipates 2022 revenues in the range of $1.51-$1.59 billion. Earlier, MED expected revenues in the range of $1.58-$1.66 billion. Revenues came in at $1.5 billion in 2021. The company expects the 2022 adjusted EPS in the band of $11.61-$13.05, lower than the earlier guidance in the band of $12.70-$14.10. The company posted an EPS of $13.89 in 2021.
Wrapping Up
Medifast is undertaking solid pricing actions to counter cost headwinds. These, along with the abovementioned upsides, are likely to help Medifast counter existing hurdles and place it well for the new year.
3 Food Stocks to Grab
Some better-ranked stocks are Mondelez International MDLZ, Campbell Soup CPB and Conagra Brands CAG.
Mondelez, which manufactures, markets, and sells snack food and beverage products, currently carries a Zacks Rank #2 (Buy). Mondelez has a trailing four-quarter earnings surprise of 6.4%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for MDLZ’s current financial-year sales suggests an increase of 8.7% from the year-ago reported number, while earnings indicate 2.4% growth.
Campbell Soup, which manufactures and markets food and beverage products, currently carries a Zacks Rank of 2. CPB has a trailing four-quarter earnings surprise of 8.7%, on average.
The Zacks Consensus Estimate for Campbell Soup’s current financial-year sales and earnings suggests growth of 8.3% and 4.6%, respectively, from the corresponding year-ago reported figures.
Conagra, a consumer-packaged goods food company, currently carries a Zacks Rank #2. CAG delivered an earnings surprise of 9.6% in the last reported quarter.
The Zacks Consensus Estimate for Conagra’s current financial-year sales and earnings suggests growth of 5.8% and 3.8%, respectively, from the corresponding year-ago reported figures.
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