Weight Watchers: Expect More Consistent Growth

Armed with a platform that better addresses consumer demand for a more holistic approach to weight management--encapsulating healthier eating, fitness, and technology--and new innovative approaches to marketing that capitalize on its Oprah Winfrey relationship, we believe the company is better positioned to extend its reach beyond its traditional over-50 female demographic. As such, we plan to raise our 2017-21 average annual revenue growth targets to the midsingle digits from the low single to midsingle digits, which will add a dollar or two to our $13 fair value estimate. We believe a return to operating margins in the high 20s is possible during this time frame--compared with 17.2% posted in 2016--which balances the operating leverage inherent in the business with additional platform or technology investments. We find shares fairly valued and believe investors still must approach this name with a wide margin of safety, given evolving consumer expectations; however, we also have greater confidence that Weight Watchers' digital and other improvements better position the platform for growth.

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