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Weight Watchers' Brand Has Come a Long Way

About the only concern we having coming out of the quarter is valuation.

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WW International Inc
(WW)

We believe investors should walk away from

About the only concern we having coming out of the quarter is valuation. On the surface, the market price/earnings multiple of 23 times our preliminary 2019 EPS outlook around $4.00 (which includes a $0.50 tailwind from new subscribers in the base) appears reasonable given the platform's increased optionality. We plan to raise our fair value estimate to $65 based new monetization opportunities, but we believe the company would need to post average annual revenue growth in the midteens and operating margins in the high 30s to justify the current market price. This isn't impossible--and we don't see many downside catalysis on the horizon--but still difficult in what is a rapidly evolving industry with nascent sources of competition, the rationale for our no-moat rating.

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About the Author

R.J. Hottovy

Sector Strategist
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R.J. Hottovy, CFA, is a consumer strategist for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He is responsible for consumer discretionary and staples research. He has covered the consumer sector as an analyst and director of global consumer equity research for Morningstar since joining the company in 2008, and specializes in a broad range of consumer categories including restaurants, footwear and apparel retailers, consumer electronics retailers, fitness clubs, home improvement and furnishing retailers, and consumer product manufacturers.

Before joining Morningstar, Hottovy was a director and senior stock analyst for Next Generation Equity and an analyst for William Blair & Co., specializing in a wide range of retail and consumer product companies. He also spent two years at Deutsche Bank, covering waste management, water utilities, and equipment rental stocks.

Hottovy holds a bachelor’s degree in finance and a second degree in computer applications from the University of Notre Dame, where he graduated magna cum laude. He also holds the Chartered Financial Analyst® designation and is a member of the CFA Institute and the CFA Society of Chicago.

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