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Nutrisystem soars as 3Q results beat Street's view

NEW YORK (AP) -- Shares of Nutrisystem rose to their highest level in more than two years on Tuesday as the weight-loss company's third-quarter adjusted earnings and revenue beat expectations.

THE SPARK: After the market closed Monday the weight-loss company reported adjusted earnings of 15 cents per share on revenue of $85.4 million. Analysts surveyed by FactSet had predicted earnings of 13 cents per share on revenue of $81.3 million.

THE ANALYSIS: Retail sales are expected to increase next year in part because Nutrisystem is looking to team up with more partners, having tested with Target Corp. and others recently, said Gregory Badishkanian of Citi Investment Research in a note to clients. Badishkanian is also encouraged by Nutrisystem's mention that Walmart shoppers are making multiple purchases of its products and coming back to buy more. He reaffirmed a "Buy" rating on the stock.

Janney Capital Markets' John San Marco said he was surprised by the 5 percent revenue growth in the quarter, having predicted a 5 percent decline. The revenue growth, combined with a forecast for a fourth-quarter revenue jump in the mid-single digits, shows that Nutrisystem's turnaround efforts are ahead of schedule, he said. The company previously predicted that revenue for the year's second half would fall by a low-single digit to mid-single digit rate.

San Marco believes that Nutrisystem's most important opportunities lie ahead and feels its "pristine" balance sheet and solid free cash flow will "provide a cushion as it works out appropriate cost structure and investment levels."

SHARE ACTION: The stock gained $3.07, or 20.5 percent, to $18.09 in afternoon trading. It reached $18.24 earlier in the session, the highest point since February 2011.