Imperial Capital Downgrades Medifast (MED) to In-Line

Imperial Capital downgraded Medifast (NYSE: MED) from Outperform to In-Line with a price target of $32.00 (from $34.00).

Analyst Mitchell Pinheiro comments, "Our price target is about 3% below the recent share price. Our In-Line rating is based on our lower earnings forecast for 2015 which incorporates more subdued growth in the Take Shape For Life segment, the expectation for a flat performance in Medifast Direct and disruption as the company transitions its weight loss centers to franchisees. While we expect TSFL to regain lost momentum sometime in 2015 driven by new products, we believe the improvement will be back half weighted. We also expect some margin pressure as MED increases investment spending behind TSFL and increases advertising in the Medifast Direct segment. We continue to believe MED’s multi-channel distribution model, vertical integration, and improving brand awareness will enable the company to gain share in the commercial diet sector over time as MED integrates into the larger, “healthy living” addressable market. The strong potential cash generation of this business model provides downside support, in our view. With continued revenue weakness, we believe investors can be patient and look for a more attractive entry point. MED trades at 7.9x our forward EBITDA estimate, in the middle of its historical EV/EBITDA range (4.8–9.4x) and a 30% discount to its comp group average multiple of 9.8x."

The firm is lowering 2014 EPS estimate to $1.73 from $1.80. We are lowering our 2015 EPS estimate to $1.65 from $1.94.

For an analyst ratings summary and ratings history on Medifast click here. For more ratings news on Medifast click here.

Shares of Medifast closed at $32.81 yesterday.

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