WW gets a New Year's bump, but should investors shed the stock?

Posted January 15, 2020 1:27 p.m. EST

— It's the middle of January. That probably means you are still trying to stick to your New Year's resolutions. And if you're like many people, losing weight, eating healthier and getting to the gym more often are probably some of your top 2020 goals.

That appears to be one reason why WW, the company formerly known as Weight Watchers, is off to a hot start this year. Shares of WW are up nearly 10% in the first few weeks of 2020, adding to impressive gains for the stock over the past few months.

WW shares are up nearly 75% in the past six months alone and are not far from their 52-week high.

The company has enjoyed an impressive run under the leadership of CEO Mindy Grossman, who left shopping network HSN in 2017 to take over as WW CEO.

Grossman has worked closely with Oprah Winfrey, who is a WW customer, spokesperson, board member and investor. Winfrey bought $43.5 million's worth of WW shares in October 2015. Winfrey's 8% stake in WW is now valued at more than $225 million.

WW unveiled a new "wellness" program -- dubbed myWW -- in November. The program has three different weight loss plans but also emphasizes fitness and other healthy living choices as opposed to just dieting and counting calories and points.

The WW rally is impressive. But it's left many on Wall Street wondering if the stock needs to take a breather.

According to data from Refinitiv, the consensus price target for WW from analysts is just under $38 a share. That's nearly 10% below the stock's current price of around $42.

It may simply be too soon to tell if dieters are really planning to stick to their weight loss plans. That's the main reason why Linda Bolton Weiser, an analyst with D.A. Davidson, downgraded WW stock in November. Her new price target is $33.

Time for WW stock price to go on a diet?

Weiser wrote in a report at the time that there was "uncertainty over diet season marketing," She said in another report later in November that the new myWW program, is good but "it is certainly not unique, as other weight loss programs (including Nutrisystem) are also focusing on greater personalization."

Concerns about increased competition from keto and paleo diets have also been a problem for WW. But the company is fighting back against these trends.

"Everybody on the diet side looks for the quick fix. We've been through this before and we know that we are the program that works," Grossman said in a conference call with analysts last February.

And Grossman told CNN's Poppy Harlow in April about how WW was adding more "zero point" foods that were low in carbs to help fight the keto craze, which also focuses on foods that are low in carbohydrates. Grossman also stressed that WW is about eating what you want in moderation as opposed to outright limiting entire categories of food.

That has helped push WW towards the top of Google search rankings for weight loss plans.

"WW shares have come in from their December highs, which we believe is in part related to trepidation surrounding competitor weight loss programs and the persistence of keto and paleo," said BofA Global Research analyst Olivia Tong in a report.

"But we are encouraged by WW's resilience in searches vs these alternatives. Keto remains king, but its search volume has declined significantly since last year," Tong added. She has a "buy" rating on WW and price target of $45.

The uncertainty about WW is likely to linger for the next few weeks though. The company should report fourth quarter and full-year earnings (as well as give a first glimpse at 2020 guidance) sometime during the end of February.

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