The analysts covering Medifast, Inc. (NYSE:MED) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory forecasts for this year. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting the analysts have soured majorly on the business.
Following the downgrade, the consensus from three analysts covering Medifast is for revenues of US$1.6b in 2022, implying a small 5.5% decline in sales compared to the last 12 months. Statutory earnings per share are supposed to fall 20% to US$11.49 in the same period. Before this latest update, the analysts had been forecasting revenues of US$1.8b and earnings per share (EPS) of US$15.38 in 2022. It looks like analyst sentiment has declined substantially, with a substantial drop in revenue estimates and a pretty serious decline to earnings per share numbers as well.
The consensus price target fell 27% to US$238, with the weaker earnings outlook clearly leading analyst valuation estimates. There's another way to think about price targets though, and that's to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. There are some variant perceptions on Medifast, with the most bullish analyst valuing it at US$285 and the most bearish at US$150 per share. There are definitely some different views on the stock, but the range of estimates is not wide enough as to imply that the situation is unforecastable, in our view.
These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Medifast's past performance and to peers in the same industry. These estimates imply that sales are expected to slow, with a forecast annualised revenue decline of 11% by the end of 2022. This indicates a significant reduction from annual growth of 35% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 9.4% annually for the foreseeable future. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - Medifast is expected to lag the wider industry.
The Bottom Line
The biggest issue in the new estimates is that analysts have reduced their earnings per share estimates, suggesting business headwinds lay ahead for Medifast. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower than the wider market. Given the scope of the downgrades, it would not be a surprise to see the market become more wary of the business.
With that said, the long-term trajectory of the company's earnings is a lot more important than next year. We have estimates - from multiple Medifast analysts - going out to 2023, and you can see them free on our platform here.
Another way to search for interesting companies that could be reaching an inflection point is to track whether management are buying or selling, with our free list of growing companies that insiders are buying.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here