Medifast Inc

Medifast, Inc. (Medifast) (NYSE: MED) is a health and wellness company. The Company sells a variety of weight loss, weight management and healthy living products all based on its proprietary formulas under the OPTAVIA, Optimal Health by Take Shape for Life, and Flavors of Home brands. Medifast’s product line includes more than 65 consumable options, including, but not limited to, bars, bites, pretzels, puffs, cereal crunch, drinks, hearty choices, oatmeal, pancakes, pudding, soft serve, shakes, smoothies, soft bakes, and soups.

Recent Financial and Business Updates:

Third Quarter 2023 Financial Performance: In the third quarter of 2023, the company faced a significant decline in revenue, witnessing a 39.6% decrease to USD 235.9 million from the previous year's USD 390.4 million. This decline was primarily attributed to a reduction in the number of active earning OPTAVIA Coaches and a drop in productivity per active earning OPTAVIA Coach. The average revenue per active earning OPTAVIA Coach declined by 15.1% to USD 5,008, reflecting ongoing challenges in customer acquisition, partially offset by a price increase implemented in November 2022. The total number of active earning OPTAVIA Coaches decreased by 28.9% to 47,100 compared to the same period in 2022.

Financial Metrics and Operational Efficiency: Despite the decline in revenue, gross profit experienced a 37.3% decrease to USD 177.4 million from USD 282.8 million in the third quarter of 2022. However, the gross profit percentage increased from 72.5% to 75.2% year-over-year, driven by efficiencies in inventory management and lower supply chain costs resulting from optimizing the company’s distribution center footprint. Selling, general, and administrative expenses (SG&A) decreased by 35.3% to USD 151.9 million, primarily due to reduced Coach compensation, progress on cost reduction initiatives, and fewer active earning Coaches. Nevertheless, as a percentage of revenue, SG&A increased to 64.4% from 60.1% in the third quarter of 2022, influenced by the loss of leverage on fixed costs due to lower sales volumes.

Operational Income and Tax Implications: Income from operations witnessed a 47.0% decrease to USD 25.5 million from USD 48.2 million in the prior-year period. This decline was primarily due to decreased gross profit, partially offset by reduced SG&A expenses and aided by cost reduction efforts. The income from operations as a percentage of revenue was 10.8% for the third quarter of 2023, down from 12.3% in the prior-year period. The effective tax rate decreased to 12.9% in the third quarter of 2023 compared to 24.5% in the prior-year period, driven by an increase in the tax benefit for charitable donations, higher research and development tax credits, and a decrease in state income taxes.

Balance Sheet Strength and Outlook: The company's balance sheet remains robust, with USD 157.8 million in cash, cash equivalents, and investment securities as of September 30, 2023, compared to USD 87.7 million in cash and cash equivalents on December 31, 2022, with no debt. Looking ahead, the company anticipates full-year 2023 revenue in the range of USD 1,050 million to USD 1,070 million and diluted earnings per share in the range of USD 8.65 to USD 9.55. The guidance assumes an effective tax rate between 20.5% and 21.5%.

Technical Observation (on the daily chart)

The Relative Strength Index (RSI) over a 14-day period stands at 42.64, currently near the oversold zone, with expectations of a short-term upside momentum or some consolidation. Additionally, the stock's current positioning is below both the 21-day Simple Moving Average (SMA) and the 50-day SMA, which may serve as dynamic short-term resistance levels. 

As per the above-mentioned price action, recent key business and financial updates, momentum in the stock over the last month, and technical indicators analysis, a ‘Buy’ rating has been given Medifast, Inc. (Medifast) (NYSE: MED) at its current price of USD 66.20 as on December 19, 2023, at 08:20 am PST.

Individuals can evaluate the stock based on the support and resistance levels provided in the report in case of keen interest taking into consideration the risk-reward scenario. 

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and prevailing geopolitical tensions. Therefore, it is prudent to follow a cautious approach while investing. 

Related Risk: This report may be looked at from a high-risk perspective and a recommendation is provided for a short duration. This report is solely based on technical parameters, and the fundamental performance of the stocks has not been considered in the decision-making process. Other factors which could impact the stock prices include market risks, regulatory risks, interest rates risks, currency risks, social and political instability risks etc. 

How to Read the Charts?

The yellow colour line reflects the 21-period simple moving average (SMA) while the blue line indicates the 50- period simple moving average (SMA). SMA helps to identify existing price trends. If the prices are trading above the 21-period and 50-period moving average, then it shows prices are currently trading in a bullish trend.

The orange colour line in the chart’s lower segment reflects the Relative Strength Index (14-Period) which indicates price momentum and signals momentum in trend. A reading of 70 or above suggests overbought status while a reading of 30 or below suggests an oversold status.

The red and green colour bars in the chart’s lower segment show the volume of the stock. The volume is the number of shares that changed hands during a given day. Stocks with high volumes are more liquid than stocks with lesser volume as liquidity in stocks helps with easier and faster execution of the order.

The Orange colour lines are the trend lines drawn by connecting two or more price points and used for trend identification purposes. The trend line also acts as a line of support and resistance.

Technical Indicators Defined: -

Support: A level at which the stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest. Support 1 refers to the nearby support level for the stock and if the price breaches the level, then Support 2 may act as the crucial support level for the stock. 

Resistance: A level at which the stock prices tend to find resistance when they are rising, and an uptrend may take a pause due to profit booking or selling interest. Resistance 1 refers to the nearby resistance level for the stock and if the price surpasses the level, then Resistance 2 may act as the crucial resistance level for the stock.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices. 

The reference date for all price data, currency, technical indicators, support, and resistance levels is December 19, 2023. The reference data in this report has been partly sourced from REFINITIV. 

Abbreviations

CMP: Current Market Price

SMA: Simple Moving Average

RSI: Relative Strength Index

USD: United States dollar 

Note: Trading decisions require a thorough analysis by individual. Technical reports in general chart out metrics that may be assessed by individuals before any stock evaluation. The above are illustrative analytical factors used for evaluating the stocks; other parameters can be looked at along with additional risks per se. Past performance is neither an indicator nor a guarantee of future performance.