Goldman Sachs
doesn’t have a No. 1 Favorite Stock designation. But it does have a Conviction List of 24 names, and those names can be ranked by the percentage share price upside implied by the firm’s price targets. The new list for November has
WW International
(WW), the diet company once known as Weight Watchers, on top, with a predicted stock gain of 117% over the next 12 months.
This is strange. The stock, which made its debut in 2001, evokes yo-yo dieting–it has been a near-constant disappointment, broken up by several episodes of frantic hope. More broadly, the company was founded in 1962. America’s obesity rate tripled over the past 60 years. A cynic could be forgiven for thinking that if this stuff worked, the country would be slimmer. And then there are the new weight loss medications from
Novo Nordisk
(NVO) and
Eli Lilly
(LLY), which appear profoundly effective.
WW ended last year with 3.5 million subscribers, down 15% in a year. This year, the debt-laden company is expected to burn cash. But there are signs of stabilization, even improvement. WW, which makes money mostly from digital diet plan subscriptions costing about $20 a month, bought a telehealth platform and added a pricier subscription tier for customers who want to go on the new meds. Management last quarter predicted 3.7 million total subscribers by year’s end.
WW reports third-quarter results on Thursday after the stock market closes. Shares have doubled in price this year—that is, they jumped from under $4 to more than $13 last month before tumbling to a recent $8.
Oprah Winfrey, a WW investor and board member, might have played an inadvertent role in September in the stock’s volatility. At an event, she described her initial reaction to the new weight loss drugs as an “easy way out” that she wouldn’t take, and a partial quote published the next day sent shares plunging. She later told The Wall Street Journal that her position had been taken out of context, and that the medicines are “an important and viable option.”
Winfrey, who famously and vocally struggled with dieting for years, has lately looked markedly slimmer. She has given no indication that diet drugs have played a role. But her approval of them was surely crucial for WW investors, given her influence.
Barron’s attempted to contact Winfrey through WW, but she hasn’t responded.
Back to the stock. Goldman writes that WW is transformed and has a “steep runway for growth.” But why would investors bother with an extra subscription fee if weight loss is as easy as an injection, and before long, surely, a pill?
For one possibility, look at a recent decision by Blue Cross Blue Shield of Michigan. Weight loss drugs are expensive; insurers would surely rather that patients eat less and exercise. Drug companies have argued that the obese are wired differently than the slim—that weight loss for them isn’t a simple matter of will power—and that treating obesity can ward off related, costly diseases. Starting last month, Blue Cross Blue Shield of Michigan patients are required to try lifestyle changes for six months before becoming eligible for coverage of weight-loss drugs. The insurer specifically mentioned WW and Noom as endorsed weight-loss programs.
If WW is indeed undergoing a sustainable recovery, and not just another false start, that could be one path. If diet plans can pitch themselves to insurers as gatekeepers to obesity meds, more patients might sign up to support their bid for coverage. But given the company’s long history of disappointing returns, investors should wait for more signs of operating momentum, beginning with Thursday’s report.
Write to Jack Hough at [email protected]
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