MED Stock Study (2-10-23)

I recently* did a stock study on Medifast Inc. (MED) with a closing price of $109.45.

M* writes:

     > Medifast Inc is a US-based company that produces, distributes
     > and sells products concerning weight loss, weight management,
     > and healthy living. The company generates its revenue from
     > point of sale transactions executed over an e-commerce platform
     > for weight loss, weight management, and other consumable
     > health and nutritional products.

This [as of 2021] medium-sized company has grown sales and earnings at annualized rates of 17.3% and 30.6% over the last 10 years, respectively. Lines are mostly up and parallel except for a 2-3-year dip between ’14 and ’17. Since ’16, lines look more up, straight, and parallel. PTPM has increased from 6.9% in ’12 to 14.2% in ’21 with a last-5-year average of 13.8%. This just beats the industry average.

ROE has increased over the last 10 years from 17.6% to an eye-popping 82.1% and far outpaces industry averages. Zero long-term debt makes this even more impressive. Debt-to-Capital (as leases) over the last five years averages 6.4%, which is far below industry averages. Current Ratio is 1.49.

I assume long-term annualized sales growth of 5% based on the following:

• YF projects YOY 4.2% and 0.6% for ’22 and ’23, respectively, based on one analyst.
• Zacks projects 2.8% YOY growth and 0.7% YOY contraction for ’22 and ’23, respectively (one analyst).
• Value Line projects 5.6% annualized growth from ’21-’26.

I assume long-term annualized EPS growth of 4% based on the following:

• MarketWatch projects annualized contraction of 1.4% and 0.9% for ’21-’23 and ’21-’24, respectively, based on one analyst.
• Nasdaq.com projects 2% YOY growth and 3.3% growth per year for ’23 and ’22-’24, respectively [2, 2, and 1 analyst(s) for ’22, ’23, and ’24].
• YF projects 9.7% YOY contraction and 5.7% growth per year for ’22 and ’23, respectively (one analyst), along with 5-year annualized growth of 20%.
• Zacks projects 6.4% YOY contraction and 2% YOY growth for ’22 and ’23, respectively (two analysts).
• Value Line projects annualized growth of 4.6% from ’21-’26 and 12.3% from ’20-’26, but the latter may be [artificially high and] less meaningful as a result of base effects (i.e. a 60% YOY jump in ’21 EPS).

This is about as scant as analyst coverage can be, which makes long-term forecast difficult. I basically have 20% and 4.6%. Given one estimate, I might halve to get an acceptable margin of safety. With two, I am just using the lower number.

My Forecast High P/E is 17. Over the last decade, high P/E has ranged from 17 (’13) to 56.5 (upside outlier in ’18) with a last-5-year average (excluding the outlier) of 26.4. I am taking the low end of the range.

My Forecast Low P/E is 6. Over the last decade, low P/E has ranged from 5.6 (downside outlier in ’20) to 18.2 (’16) with a last-5-year average of 12.1. I am targeting the lower end of the range.

My Low Stock Price Forecast is the default value of $79.10. This is 27.7% below the previous closing price. It is also 17.6% below the 52-week low and 57% below the 2021 low.

All this computes to an U/D ratio of 5.4, which makes MED a BUY. The Total Annualized Return is 22.4%.

MED has a hefty dividend yield close to 6%. After dividend inception in ’15, Payout Ratio has ranged from 40.9% (’21) to 71.8% (’16) with a last-5-year average of 51.2%. I am forecasting below the entire range at 40%.

PAR is 14.5%, which is outstanding for a medium-sized company.

I use Member Sentiment (MS) to assess margin of safety (MOS) by getting some idea how likely the company may be to outperform my estimates. Out of 176 studies over the past 90 days (my own and 104 others with projected low prices above last closing price excluded), projected sales, projected EPS, Forecast High P/E, Forecast Low P/E, and Payout Ratio average 10%, 8.7%, 20.5, 11.2, and 50.1%, respectively. I am lower on all inputs. Value Line projects an average annual P/E of 20, which is higher than MS (15.8) and me (11.5). MOS seems healthy here.

MS Low Stock Price Forecast is $77.15—about 3% below mine. This would lower my U/D just a tad while effectively lowering the Forecast Low P/E, which I already selected to be sufficiently low.

As an aside, I’m surprised to see so many [now] invalid studies due to Low Stock Price Forecast > previous close. These studies are all from the past 90 days when MED traded no higher than $130.31. Forecast Low Stock Price is $130 or higher in 77 of those studies, which means they were invalid from the outset.

*—Publishing in arrears as I’ve been doing one daily stock study while posting only two blogs per week.