Shares of WW International (WW), known as Weight Watchers, fell after Oprah Winfrey announced she would not seek reelection to the company's board. Winfrey cited her desire to avoid conflicts with her own use of the weight loss drug Ozempic.
Despite this, D.A. Davidson's Linda Bolton Weiser reiterated her bullish view on Yahoo Finance Live. She notes Oprah has been "reducing her stake" for some time, and believes the company's operating results outweigh Winfrey's departure.
Weiser claims her price target remains the same given Weight Watchers' "turnaround." She sees stabilization in the core business with growing users and clinical offerings.
For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.
Editor's note: This article was written by Angel Smith
Video Transcript
AKIKO FUJITA: WW International, better known as Weight Watchers, shares tumbling today. This comes after Oprah says she will not stand for re-election on the company's board in May. The health management company reporting fourth quarter revenue down 7.6% compared to a year ago. For more on this, let's bring in Linda Bolton Weiser, DA Davidson managing director.
Linda, it's good to talk to you. The context or the background to all, of course, Oprah has acknowledged that she has been able to lose a lot of weight using those GLP-1 drugs. And you've got still what looks to be a very bullish price target on Weight Watchers. You're changing that target at all in light of what's played out today?
LINDA BOLTON WEISER: No, not at all. In fact, I raised my operating profit estimate for 2024 by 20%. And I kept my 2025 EPS estimate the same at $0.60 a share. So really, my price target stays the same. I do think that there's a lot of media attention today being put on the whole Oprah issue. But she's been reducing her stake in the company for quite a while now and distancing herself.
And actually, the press release said that part of the reason she is stepping off the board and donating her remaining stake is that she doesn't want there to be the appearance of a conflict of interest as she talks about her use of the GLP-1 weight loss drugs. So I think there's a lot of attention being put on that and not enough attention being put on the operating results of the company, which are actually improving.
AKIKO FUJITA: So the Oprah decline, we should say, that may be a little oversold. But there have been real concerns here about Weight Watchers and its ability to compete in the market in light of the surge that we have seen in demand for GLP-1 drugs. What do you think investors are missing?
LINDA BOLTON WEISER: Well, I think what investors are missing is that there actually has been a turnaround in the core business. So the GLP-1 and their clinical business is an important part of the story, but it's certainly not the whole story. We estimate that the GLP-1 business, what they call clinical, will represent 20% of revenue in 2025.
So the majority of the business is still the core business. And people have been concerned with declines there in the last few years. But that business has actually stabilized and is actually growing core subscribers. And so I think that's what people are missing here is that you've got an improving core business, and then you've got the added icing on the cake of the rapid growth of their clinical business.
AKIKO FUJITA: So let's go back to that price target you mentioned, $12.50 a share is what you're looking at right now. What are the key catalysts that will get it there when you consider where the stock is trading today?
LINDA BOLTON WEISER: Sure. Well, I've actually got low single digit core revenue growth in 2024. And then in 2025, I've got 10% revenue growth because that's when clinical becomes a bigger portion. And clinical will probably still grow 50%, I would say, in 2025. Slower than it is now, but still a good growth rate. And also, their gross margin is expanding quite a bit as the business shifts from workshop to digital.
And as they improve the scale in the clinical business, that gross margin will improve from a little over 30% to probably getting close to 40%. So you've got a number of gross margin drivers. You've got improving top line performance. And right now, they're proving they can keep marketing spending stable and do the growth initiatives that they're planning.
AKIKO FUJITA: Linda Bolton Weiser, DR Davidson managing director, it's good to get your take today. I appreciate you joining us.
LINDA BOLTON WEISER: Thanks
