Medifast, Inc. (MED - Free Report) , a leading weight management and healthy living products company, has faced a tough period, with its stock declining significantly by 24.7% over the past three months. This decline is notably steeper compared with the industry's decline of 5.4% and the Zacks Food - Miscellaneous sector’s marginal decline of 1% in the same timeframe. The current stock price is down 79% from its 52-week high of $92.13, highlighting the severity of the downturn.
Medifast's stock is trading below its 50-day and 200-day moving averages, indicating bearish sentiment and investor caution regarding its near-term and long-term performance. This underperformance suggests concerns about the company's operational outlook.
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Factors Impacting the Stock Performance
Medifast has been encountering difficulties in attracting customers due to macroeconomic challenges, including intense competition in the health and wellness space, the disruptive effects of GLP-1 regimen adoption, and a general slowdown in consumer spending. Although management anticipates that these pressures will persist in the short term, it is expected that its initiatives will begin positively impacting the top line later this year and into 2025.
As a result, Medifast's revenues in the second quarter of 2024 plummeted 43.1% year over year, largely due to the reduced number of active OPTAVIA Coaches and diminished productivity per Coach. The average revenue per active earning OPTAVIA Coach was down 10.9% year over year due to lower customer acquisition.
The company has been grappling with higher SG&A expenses for a while now. As a percentage of net sales, this metric increased 940 basis points to 67.5%. This was primarily attributed to market research and investment costs related to medically supported weight loss activities and reduced leverage on fixed costs resulting from decreased sales volumes.
Further, the quarterly gross profit declined 40.2% year over year due to lower revenues. Management projects third-quarter 2024 revenues between $125 million and $145 million, a sharp decrease from the $235.9 million reported in the same quarter of 2023. This forecast indicates continued near-term challenges in customer acquisition, largely influenced by the rising popularity of GLP-1 medications.
Downward Trend in Estimates
In the past 30 days, the Zacks Consensus Estimate for the current quarter has dropped sharply from 14 cents per share to a loss of 1 cent per share. This forecast represents a decrease of 100.4% from the year-ago levels, reflecting the company's cautious outlook amid ongoing market uncertainties and challenges.
The Brighter Side of the Picture
To overcome the above challenges, Medifast is actively working to drive its growth by implementing several key measures. These measures include strategic investments in marketing and product development, which are crucial for driving long-term growth. While these investments may negatively impact EPS in the near term, it is essential for positioning Medifast for future success.
The company is focused on enhancing its long-term supply-chain capabilities to manage anticipated growth over the coming years. This includes optimizing and expanding capacity through strengthening its network of co-manufacturers.
Medifast is also investing in technology and infrastructure, including a strategic collaboration with Life MD, a leading telehealth provider, to offer a comprehensive wellness solution nationwide by the end of 2024. Additionally, the company is committed to investing in customer acquisition and experience to support sustained long-term growth.
Final Thoughts
Medifast's present challenges, including declining sales and macroeconomic headwinds, indicate that investors should avoid rushing into the stock. They should monitor the company's progress and wait for a more favorable entry point. For those already invested, holding onto the stock should be wise, considering the company's long-term growth potential. The company’s Zacks Rank #3 (Hold) aligns with this cautious investment strategy.
3 Picks You Can’t Miss
Here, we have highlighted three better-ranked food stocks, namely, The Chef's Warehouse (CHEF - Free Report) , Vital Farms (VITL - Free Report) and Freshpet, Inc. (FRPT - Free Report) .
The Chef’s Warehouse, which engages in the distribution of specialty food products, currently sports a Zacks Rank #1 (Strong Buy). CHEF has a trailing four-quarter earnings surprise of 33.7%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for The Chef’s Warehouse’s current fiscal year sales and earnings indicates growth of 9.7% and 12.6%, respectively, from the year-ago reported numbers.
Vital Farms offers a range of produced pasture-raised foods. It currently carries a Zacks Rank #2 (Buy). VITL has a trailing four-quarter average earnings surprise of 82.5%.
The Zacks Consensus Estimate for Vital Farms’ current financial-year earnings suggests growth of 88.1% from the year-ago reported numbers.
Freshpet, Inc., a pet food company, has a trailing four-quarter earnings surprise of 132.9%, on average. FRPT currently carries a Zacks Rank #2.
The Zacks Consensus Estimate for Freshpet’s current financial-year sales and earnings indicates growth of 26.1% and 251.4%, respectively, from the prior-year reported level.
