Nutrisystem Inc. will feel the pinch from consumers tightening their spending, according to one analyst, as the diet company's high prices will deter dieters from its programs.
Lehman Brothers analyst Karen Howland started coverage of Nutrisystem at "Underweight," and said the company's upfront payment of $300 for a month of meals may be too much for Americans who are trying to save money.
"It is a relatively expensive weight loss program when all food costs are taken into consideration, which we believe will be an issue in the current economic environment," Howland wrote in a client note.
Howland said that during the last consumer-driven recession in the early 1990s, the entire commercial weight loss industry slowed.
Howland, who has a $17 price target on the shares, expects consumers will get creative and shift toward self-administered diets.
Also, a delay in rolling out international programs in the U.K. and Japan until the second half of 2009 pushes back growth opportunities.
Earlier this month, Nutrisystem forecast first-quarter revenue of $216 million and operating profit of $21 million to $24 million, both of which topped Wall Street estimates.
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