Why Weight Watchers Could Post 10% Subscriber Growth

WW International Inc WW snagged a bullish upgrade from DA Davidson, premised on strong subscriber growth and an attractive valuation.

The WW Analyst

Linda Bolton Weiser upgraded WW from Neutral to Buy and increased the price target from $33 to $56.

The WW Thesis

The 2020 consensus sales growth estimate of 5% for WW is modest, Bolton Weiser said in a Friday note. The analyst estimates subscriber growth could be at least 10% in the first quarter and 2020, basing her view on the recent trends and the third-quarter subscriber number of 4.43 million.

Historically, WW's subscriber numbers decline sequentially in the second quarter through the fourth quarter, and increase by double-digits in the first quarter. The analyst estimates a 20% sequential increase in subscribers in the first quarter of 2020, slightly higher than the 17% growth in the first quarter of 2019, which was a "bad" year without a new program launch.

In 2020, there is the myWW plan, which is being well received. For the remainder of 2020, Bolton Weiser models 9-10% growth range for each quarter, if the magnitude of sequential decline by quarter follows the same trend in 2019.

The analyst's conservative estimate calls for the company to end 2020 with 4.6 million subscribers.

For the first quarter, DA Davidson estimates sales of $378 million, EBITDA of $50.9 million and gross margin of 56.3%. This compares to the consensus estimates, which call for sales of $382 million, EBITDA of $42.3 million and gross margin of 55.8%.

The company is scheduled to report its fourth-quarter results Tuesday.

WW Price Action

WW's stock traded higher by 2.2% to $38.65 per share at time of publication.

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