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Why Shares of Nutrisystem Inc. Popped Tuesday

By Alex Dumortier, CFA - Mar 3, 2015 at 2:22PM

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Relative to Weight Watchers, Nutrisystem's results and guidance were gorgeous

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Nutrisystem (NTRI) rose as much as 18% on Tuesday after the company reported fourth-quarter earnings per share of $0.18, two cents higher than Wall Street's consensus estimate. By 2:10 p.m. shares were up about 13% from the previous close.

So what: The financial media is pointing at Nutrisystem's two-cent "beat" in explaining today's stock price action. However, those earnings have already been banked and the company's guidance for the current quarter and the full year were in line, almost to the penny (or to within a million dollars, for revenues), with Wall Street's expectations, as the following table demonstrates:

 

Achieved

Consensus Estimate

Q4 Revenues

$79.2 million

$80.4 million

Q4 EPS

$0.18

$0.16

 

Guidance

 

Q1 2015 Revenues

$129 million-$134 million

$132 million

Q1 2015 EPS

$0.02-$0.07

$0.05

2015 Revenues

$429 million-$445 million

$436 million

2015 EPS

$0.73-$0.83

$0.79

Source: Thomson Financial Network, FactSet, Nutrisystem

How, then, to explain the price pop? I believe it's a "relief rally" in the wake of last Thursday's dismal fourth-quarter results and guidance from Nutrisystem competitor Weight Watchers International (WW 0.00%). Quarterly revenues fell 10%. Membership was down 15% and the company issued a guidance range for full-year earnings per share of $0.40 to $0.70, nowhere near to the $1.43 analysts had been forecasting. On Friday, shares of Weight Watchers fell more than 35% -- their worst daily decline since the company's November 2001 initial public offering.

Weight Watchers' business has suffered from a secular change in consumer habits, as people have begun adopting mobile applications and devices to track their caloric intake and expenditures -- a shift that is relevant to Nutrisystem also.

Now what: While Nutrisystem is no Weight Watchers, it does face increasing competition from digital upstarts. Furthermore, despite generating positive free cash flow, business performance is simply too inconsistent and business visibility too cloudy for Nutrisystem to be an appropriate investment for individual investors.

Alex Dumortier, CFA has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Nutrisystem, Inc. Stock Quote
Nutrisystem, Inc.
NTRI
WW International, Inc. Stock Quote
WW International, Inc.
WW
$7.08 (0.00%) $0.00

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