Weight Watchers ‘Not Out of the Woods,’ Street Says Despite Beat

(Bloomberg) -- Weight Watchers International Inc. isn't quite out of the woods yet, according to analysts, despite posting a first quarter loss narrower than expectations and boosting the profit estimate for this year.

Both cost reductions and new marketing efforts prompted some analysts to raise their price targets, but couldn't entirely erase doubts after the previous quarter's results in February which saw at least seven downgrades.

Shares for the company that's rebranded as WW rose as much 20 percent in Friday trading, the biggest jump since Feb 2018.

Weight Watchers' notes were among the top performers in the U.S. high-yield market on Friday after the results, according to Trace bond trading data. The company's 8.26% bonds due 2025 jumped as much as 5.75 cents on the dollar to trade at 95.50, according to Trace.

Here's what Wall Street is saying:

Oppenheimer, Brian Nagel

“Visibility on improved results is now decidedly limited, particularly given what appear to be significant missteps in efforts to connect with core subscribers," Nagel wrote, adding "WW is by no means out of the woods.”

However, "while subscriber growth remains soft, trends later in the period stabilized and tracked better than subdued guidance." Oppenheimer is encouraged that new marketing is resonating with core customers.

Rates perform

J.P. Morgan, Christina Brathwaite

Cautions investors that "although WW is launching a new diet program at the end of this year, it historically takes time for these new launches to drive revenue growth,” adding that “WW is not out of the woods yet as revenue guidance still embeds a sequential acceleration in 2H assuming retention rates improve.”

Sees EPS growth potential limited by the need to reinvest substantially behind marketing toward the end of 2019 and in 2020 in order to drive subscriber growth.

Removes Weight Watchers from its analyst focus list given shares likely bolstered by hopes that positive signs continue.

Keeps underweight rating, raises price target to $17 from $14

Sidoti, Frank Camma

WW is “a powerful franchise” and Camma stays bullish as high-margin services revenue and operating expenses were both better than Sidoti modeled. “While the operating margin was down sharply year-over-year, WW's ability to maintain a healthy operating margin despite falling revenue reflects its subscription-based model, which is a key investment highlight we focus on.”

Rates buy, price target $37

--With assistance from Katherine Doherty.

To contact the reporter on this story: Rebecca Choong Wilkins in New York at rchoongwilki@bloomberg.net

To contact the editors responsible for this story: Courtney Dentch at cdentch1@bloomberg.net, Will Daley

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