Morningstar

Don’t Count Out Weight Watchers Yet

The market may be disappointed that the Oprah effect hasn’t had a more pronounced impact yet, but Morningstar’s R.J. Hottovy sees the firm on track to make gradual progress.

Securities In This Article
WW International Inc
(WW)

Although

The market may have been looking for a more pronounced "Oprah effect" in 2016, likely explaining today's pullback. However, full-year 2016 guidance (calling for low-single-digit revenue growth, 100 basis points of gross margin expansion to just over 50%, flat marketing and general and administrative costs as a percentage of sales, and adjusted EPS between $0.70 and $1.00) is consistent with our expectations for a more gradual recovery. This guidance strikes us as realistic when factoring in structural industry changes, including mobile apps and other technologies disrupting industrywide pricing power (the basis for our no-moat rating). The changes to our model to conform to management guidance will be insufficient to change our $14 fair value estimate, but we believe the market may be overly discounting Weight Watchers' chances for recovery, and the stock may be worth a look with a moderately wider margin of safety.

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About the Author

R.J. Hottovy

Sector Strategist
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R.J. Hottovy, CFA, is a consumer strategist for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He is responsible for consumer discretionary and staples research. He has covered the consumer sector as an analyst and director of global consumer equity research for Morningstar since joining the company in 2008, and specializes in a broad range of consumer categories including restaurants, footwear and apparel retailers, consumer electronics retailers, fitness clubs, home improvement and furnishing retailers, and consumer product manufacturers.

Before joining Morningstar, Hottovy was a director and senior stock analyst for Next Generation Equity and an analyst for William Blair & Co., specializing in a wide range of retail and consumer product companies. He also spent two years at Deutsche Bank, covering waste management, water utilities, and equipment rental stocks.

Hottovy holds a bachelor’s degree in finance and a second degree in computer applications from the University of Notre Dame, where he graduated magna cum laude. He also holds the Chartered Financial Analyst® designation and is a member of the CFA Institute and the CFA Society of Chicago.

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