MED Stock Study (7-10-23)

I recently did a stock study on Medifast, Inc. (MED) with a closing price of $92.12. The original study is here.

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.

Over the past decade, this medium-size company has grown sales and earnings at annualized rates of 23.5% and 32.4%, respectively. Lines are mostly up and parallel except for a 2-3-year dip between ’14 and ’17 and EPS in ’22. PTPM just beats the industry average while trailing peers by increasing from 9.6% in ’13 to 11.5% in ’22 with a last-5-year mean of 13.4%.

Over the past decade, ROE leads peer and industry averages by increasing from 20.4% in ’13 to an eye-popping 92.0% in ’22 with a last-5-year mean of 72.8%. Zero long-term debt makes this even more impressive. Debt-to-Capital [as uncapitalized leases] over the last five years averages 9.3%, which is far below peer and industry averages. Current Ratio is 1.75, Quick Ratio is 0.94, and Value Line’s Financial Strength rating is A.

With regard to sales growth:

• CNN Business projects contraction of 25.4% YOY and 13.4% per year for ’22-’24 (based on one analyst).
• YF projects YOY 27.6% contraction and 4.6% growth for ’23 and ’24, respectively (one analyst).
• Zacks projects YOY 24.9% contraction and 6.7% growth for ’23 and ’24, respectively (1).
• Value Line projects 0.5% annualized contraction from ’22-’27.
• CFRA projects contraction of 27.6% YOY and 13.0% per year for ’23 and ’22-’24, respectively (1).

I am forecasting just below the only long-term estimate available at -1.0%.

With regard to EPS growth:

• CNN Business projects contraction of 45.2% YOY and 21.7% per year for ’23 and ’22-’24, respectively (based on one analyst), along with 5-year annualized growth of 20.0%.
• MarketWatch projects contraction of 21.9% YOY and 12.0% per year for ’22-’24 and ’22-’25, respectively (one analyst).
• Nasdaq.com projects growth of 10.2% YOY and 20.5% per year for ’24 and ’23-’25, respectively [2, 2, and 1 analyst(s) for ’23, ’24, and ’25].
• YF projects YOY 41.4% contraction and 11.7% growth for ’23 and ’24, respectively (1), along with 5-year annualized growth of 20.0%.
• Zacks projects YOY 38.8% contraction and 10.0% growth for ’23 and ’24, respectively (1).
• Value Line projects annualized contraction of 4.7% from ’22-’27.
• CFRA projects contraction of 37.5% YOY and 16.5% per year for ’23 and ’22-’24, respectively (1).

This is about as scant as analyst coverage can be, which makes a long-term forecast exceedingly difficult. I basically have 20.0% and -4.7%. I will use the latter to calculate low EPS ($10.01/share in five years) and 0% as an optimistic forecast to get high EPS based on ’22 EPS of $12.73/share as an initial value rather than ’23 Q1 $12.79 (annualized).

My Forecast High P/E is 15.0. Over the past decade, high P/E has ranged from 17.0 in ’13 to 32.7 in ’17 (56.5 outlier in ’18 excluded) with a last-5-year mean (excluding the outlier) of 22.6 and a last-5-year-mean average P/E of 16.4. I am forecasting below the range.

My Forecast Low P/E is 6.0. Over the past decade, low P/E has ranged from 5.6 in ’20 to 18.2 in ’16 with a last-5-year mean of 10.1. I am forecasting near the bottom of the range (only ’20 is lower).

My Low Stock Price Forecast (LSPF) is the default $60.10 based on $10.01/share initial value. This is 34.8% less than the previous closing price and 22.7% less than the 52-week low. My LSPF is a level not seen since ’20.

After dividend inception in ’15, Payout Ratio has ranged from 40.9% in ’21 to 71.8% in ’16 with a last-5-year mean of 48.9%. I am forecasting conservatively at 35.0%.

These inputs land MED in the BUY zone with a U/D ratio of 3.1. Total Annualized Return (TAR) is 18.0%.

PAR (using Forecast Average—not High—P/E) is 11.1%, which is decent for a medium-size company. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 145 studies done in the past 90 days (my study and 59 other outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and Payout Ratio are 11.1%, 10.1%, 21.6, 11.1, and 51.2%. I am lower across the board. Value Line projects a future average annual P/E of 20.0, which is higher than MS (16.4) and mine (10.5).

MS high/low EPS is $20.69/$12.53 vs. my $12.73/$10.01 per share. My high EPS is lower due to a lower forecast growth rate.

MS LSPF of $85.00 implies a Forecast Low P/E of 8.5 rather than the above-stated 11.1. MF LSPF is 23.5% below the default value of $10.01/share * 11.1 = $111.11, which results in more conservative zoning. This remains 41.4% higher than mine.

MOS seems robust in the current study.

PEG ratio and Relative Value [(current P/E) / 5-year-mean average P/E] are two valuation metrics I have recently begun to monitor. Although I can’t calculate the former from a growth rate less than 1.0%, Relative Value (M* data) is 0.44, which suggests the stock to be significantly undervalued.

I am also just starting to familiarize myself with Kim Butcher’s “quick and dirty DCF.” According to this method, the stock should be valued at 20 * [$11.10 – ($7.15 + $0.90)] = $61.00 (i.e. stock overvalued by 51.0%).

I would look to buy this stock under $92/share.