Download - Medifast (MED) Pitch
Medifast, Inc.
Chris Hemmelgarn Sven Karlsson Sarosh Nentin February, 2011
! Ticker: MED ! Price: $24.73 (2/7/11) ! Recommendation: BUY ! Price Target (12 months): $34.00
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! Market Growth: Obesity increasing in United States
! Best Growth Opportunities Remain: Low penetration in markets with best demographics
! Immediate Access to Growth Opportunities: Invested in production and distribution capacity
! Market is does not fully understand/appreciate Multi-Level Marketing (MLM) Sales Force Structure
! Growth Prospects for Brick & Mortar are not fully anticipated
Investment Thesis
Recommending BUY with a 12-month price target of $34.00/share representing 40% upside
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! Designs, Produces, and Distributes Weight Management Products in the United States
! Market Cap: $360 Million ! Revenues: $238 Million ! Earnings: $19 Million
Medifast
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! A standard 4-week package for men costs $299.50 or less than $11 per day (>80% of all food required)
! Estimate 2-5lbs per week of weight loss – industry leading
Weight Loss Market is driven primarily by two factors 1. Disposable Income: diets are viewed as a
“luxury” item 2. Obesity: trending consistently upwards for
(at least) past 25 years
Two Key Market Drivers
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! The market for weight loss products is clearly growing
! 60% of Medifast’s business is located in just 7 cities representing 4.2% of U.S. population
Market Growth
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! None of these metropolitan locations areas are in the states with the worst obesity problems
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Best Opportunities Remain
! Medifast has continued to invest in its business through the recent recession
! Recently built a second distribution plant in Dallas to double their capacity (online starting 4Q 2010)
! Estimated they now have capacity for $400 million in annual sales vs. current LTM revenues of $240 million ! Planning to double this capacity to $800 million in
2011 for $2.5 million CapEx
Access to Opportunities
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! Direct Marketing ! Brick & Mortar ! Take Shape for Life
Sales Channels
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Revenue by Segment LTM Revenue Growth by Segment
Sales Channels
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Revenue by Channel
Take Shape for Life
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Active Health Coaches
Take Shape for Life
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Monthly Average Revenue per Coach
Weight Control Centers
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Brick and Mortar Locations & Revenue
Direct Sales
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Direct Response Revenue v. Ad Spend
Comparable Companies
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Multi-Level Marketing ComparablesUSANA Health Sciences Inc. USNA $672.6 15.20x 8.95x 1.35x 1.3x 8.5x 13.6x 0.93Avon Products Co Ltd. 4915 $51.1 NM 7.86x 0.16x NM NM NM NMNature's Sunshine Products Inc. NATR $134.2 10.36x 5.29x 0.24x NM NM NM NMReliv International, Inc. RELV $21.7 11.41x 3.67x 0.20x NM NM NM NMNu Skin Enterprises Inc. NUS $1,963.8 15.89x 8.00x 1.26x 1.2x 7.3x 14.0x 0.93Pre-Paid Legal Services, Inc. PPD $631.5 10.46x 5.46x 1.30x NM NM NM NMYTB International, Inc. YTBL.A $3.8 NM 5.04x 0.13x NM NM NM NMMean - MLM Comps Only 12.66x 6.32x 0.66x 1.3x 7.9x 13.8x 0.93Median - MLM Comps Only 11.41x 5.46x 0.24x 1.3x 7.9x 13.8x 0.93
CompetitorsSchiff Nutrition International Inc. WNI $232.3 13.46x 6.13x 0.91x 0.9x 7.7x 16.5x 2.06Nutraceutical Intl Corp. NUTR $154.3 9.81x 5.35x 1.00x 1.0x - 9.2x NMNutriSystem Inc. NTRI $552.4 22.23x 8.23x 0.97x 1.0x 6.1x 15.7x 0.90Herbalife Ltd. HLF $4,065.6 16.17x 9.40x 1.56x 1.4x 8.3x 14.1x 0.92Weight Watchers Intl, Inc. WTW $2,521.6 16.00x 10.36x 2.77x 2.7x 9.2x 13.1x 0.87Ediets.com Inc. DIET $39.0 NM NM 1.88x 1.2x NM NM NMMean - Competitors Only 15.53x 7.89x 1.52x 1.4x 7.8x 13.7x 1.19Median - Competitors Only 16.00x 8.23x 1.28x 1.1x 8.0x 14.1x 0.91
Wtd. Average Mean - MLM Comps & Competitors (1) 13.53x 6.80x 0.92x 1.3x 7.9x 13.8x 1.01Median - MLM Comps & Competitors (1) 12.79x 6.29x 0.55x 1.2x 7.9x 13.9x 0.92
Medifast Inc. (NYSE:MED) $375.7 18.55x 9.32x 1.45x 1.1x 6.4x 14.0x 0.56Source: CapitalIQ
(1) Weighted Average Mean calculated using a 70% weighting on the MLM Comps and 30% on Competitors, based on the % revenue contribution of the "Take Shape for Life" business line
Relative Valuation
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! Target price based on P/E multiple valuation
! EBITDA and Revenue multiple valuation further confirm premium
! DCF Valuation supports price target from Relative Valuation
Valuation
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! Low barriers to entry for competition or new entrant into the market may develop a similar product/program
! New fad diets or other substitute products could take
market share ! Slower Economic Recovery ! Supply Chain or Product Manufacturing Disruption
Key Risk Factors
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Nutrisystem (NTRI)
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Nutrisystem (NTRI)
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! Founded in 1971 ! Explosive growth until the early 1990’s when the
company declared bankruptcy ! Decided to focus on online sales combined with
national advertising in 1999 ! Strong growth through early 2000’s, but struggled over
the last few years due to declining effectiveness of advertising and the recession
! Good company but 100% dependent on Advertising & Direct Sales.
! 12-month price target of $21 (16x FY2011 EPS - $1.32)
NTRI Key Issue
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NTRI Sales
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MED Sales
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NTRI Earnings
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MED Earnings
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NTRI Historical P/E
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MED Historical P/E
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! Market Growth ! Best Growth Opportunities Remain ! Immediate Access to Growth Opportunities ! Market is Focused on Multi-Level Marketing (MLM) Sales
Force Structure ! Growth Prospects for Brick & Mortar are not fully
anticipated
Investment Thesis
Recommending BUY with a 12-month price target of $34.00/share
representing 40% upside
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