Medifast Report

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					    Stock Name: Medifast                              Stock Symbol: MED
    Industry: Specialty Retail                        Name: Runu Ukwade, Associate/Analyst
    Sector: Services                                  Name: James Suh, Services Sector Analyst
    Price: $27.30 (4/8/2010)                          Presentation Date: April 8, 2010
    Recommendation: Buy

Business Summary:
       Medifast, Inc was founded by William Vitale, M.D. in 1980. Medifast initial public offering was in
2003. Medifast is a small cap company with a market capitalization of $355.48M and 244 Employees.
The company produces, distributes, and sells weight management products, disease management
products, and other consumable health and diet products in the United States.


Medifast 5 &1 Plan - Medifast offers diet meal packages geared towards men, women, and individuals
with diabetes.
     5 Medifast meals - Choose 5 Meals from over 70 different, delicious Medifast choices, including
        shakes, soups, stew, chili, oatmeal, scrambled eggs, fruit drinks, iced teas, hot drinks, bars and
        puddings. Vegetarian meals provided 5 Meals eaten 2-3 hours apart throughout the day.
     1 Lean & Green Meal - consists of lean meat plus salad and/or vegetables. Eaten at anytime
        during the day
Variety Package - The standard Medifast 5&1 Plan meal package
     2 Week Package - $154.50, 70 meals
     4 Week Package - $299.50, 143 meals
Enhanced Package - The Medifast 5 & 1 Plan plus Super Omega-3 nutrient supplement
     4 Week Package - $325.5
Preventative Healthcare Products – Medifast offers supplements geared towards digestive and cardiac
health, antioxidants, and calorie burners.
Miscellaneous Products - Medifast also offers blenders and diet program guides.

Product Distribution

        Medifast sells its products through various channels of distribution, including Web, call center,
independent health advisors, medical professionals, weight loss clinics, and direct consumer marketing
supported via the phone and the Web; Take Shape for Life, a physician led network of independent
health coaches; and weight control centers.

Fitness Counseling – Trained professionals offer counseling on health care and weight loss. Counseling is
implemented through Taking Shape For Life and Medifast Weight Control Centers
Online Services
     Medifast users who have similar interests and goals, and share your discoveries, challenges, and
        victories, large and small, 24/7 through discussion boards, chat rooms, and blogs.
     Participate in dynamic group chats with our team of Registered, Licensed Dietitians and Certified
        Personal Trainers.
     Create daily reports, journals, and customized graphs outlining your success.
     Consult the MyMedifast Library for resources to help you with any phase of the Medifast
     Browse recipes, exercise programs, tips for dining out, and much more.

Business Channels

Jason Pharmaceuticals
        Jason Pharmaceuticals, Inc., produces over 80% of the Medifast products in a new food and
pharmaceutical-grade 3.4 million USD plant in Owings Mills, Maryland. Additional shifts are planned to
increase capacity and improve sales by approximately 250 million USD.

Medifast Direct (distributor)
         Medifast Direct sells Medifast products to consumers through national multi-media advertising,
direct mail, and web site. The division offers program information and support for its clients through the
MyMedifast online community, which provides details on the products and the Medifast 5 & 1 Plan, as
well as online tools, planners, menus, and a chance for clients to support each other through chat
rooms, discussions, and blogs.

Take Shape For Life (distributor)
         Take Shape For Life is a network of weight-loss centers that focus on a triad of health: mind,
body, and finances. Franchisees are trained as coaches to assist customers in participating in the
Medifast Diet weight-loss program. Take Shape for Life is a wholly owned subsidiary of Medifast, Inc. It
owns and controls its own manufacturing facilities, which are inspected by the U.S. Food and Drug
Administration (FDA), and significant warehousing and distribution facilities. Take Shape For Life is the
health coaching division of Medifast, Inc., and is a wholly owned subsidiary of that company. Take Shape
For Life is a living network of clients, Health Coaches, and health care professionals who focus on the
Trilogy of Optimal Health: mind, body, and finances.

Medifast Weight Control Centers (distributor)
        Currently located in Alabama, California, Florida, Georgia, Minnesota, Maryland and Texas,
these centers offer clients a health profile review with personal counseling that customizes their weight-
loss experience, as well as guaranteed results. Franchisees are trained as counselors to assist clients with
the Medifast weight-loss program.

Medifast Doctors (distributor)
        Doctors can support their patients using Medifast either through the Health Care Professionals
segment of Take Shape For Life, as Medifast Weight Control Center franchisees, or by recommending or
providing the Medifast products and program support through their own practices.

Bradley T. MacDonald
Chairman of the Board
    Chairman of Board since 1998. CEO until March 2007.
    As CEO managed the company to 29 consecutive quarters of profits
    Improved shareholders equity from negative $4 million to over $27 million in less than seven
    Increased the Company's market cap from less than $1 million to over $100 million
    Compensation: $460K

Leo Williams
Executive Vice President
     Held position since 2004
     Compensation: $220K

Michael S. McDevitt
    CFO since 2004
    CEO since 2007
    Compensation: $595K, exercised $1.37M

Margaret MacDonald-Sheetz , MBA
President, COO
     10 Years management experience at Medifast
     Compensation: $505K

Brendan Connors, CPA
Vice President of Finance
     VP of finance since 2005
     Compensation: $242K, exercised $319K

Recent News:
March 3, 2010: Hedge fund SAC Capital purchases 6.4% stake in Medifast.
    SAC Capital is a short-term trade based hedge fund consequently, the 6.4% stake in Medifast is
       temporary. SAC Capital’s inevitable exit from this position could affect the price of Medifast in
       the near term.

February 18, 2010: Medifast, Inc. filed a lawsuit against Barry Minkow, the Fraud Discovery Institute and
others in the Federal District Court for the Southern District of California. Â The lawsuit seeks monetary
damages of no less than $270 million owing to the defamatory statements made, repeated and
perpetuated by Minkow and others through their respective websites and blog postings.
    If lawsuit is successful, positive cash flow upwards of $270 million to Medifast. Increase in cash
        will facilitate additional financing for operations and increase stock price.

January 13, 2010: Barrack, Rodos & Bacine (securities litigation law firm) announced investigation of
Medifast regarding sustainability of the Company’s rapidly growing direct sales distribution channel and
the possibility that management made false and misleading statements regarding Medifast’s revenues
and earnings results and growth potential.
       Civil and criminal charges could be pressed against Medifast and successful litigation would have
        a negative impact on management perceptions and consequently company market value.
        Investigation is still ongoing

Industry Analysis
    Two week packages available for individuals with smaller weight loss goals
    Fully staffed weight loss centers that provide dedicated fitness counseling
    Doctors are able to direct participate in the program and help facilitate patient weight loss goals
    Several healthcare supplements offered including those that target the digestive system and
       cardiac system.
    Products are distributed through numerous avenues including medical offices, sponsored weight
       control centers, and direct home delivery.

     Brand name recognition. Other major market players such as Nutrisystem, Weight Watchers,
       and Jenny Craig currently have a larger market share.
     Lack of celebrity spokespeople. Larger competitors utilize celebrity spokespeople for marketing

Business Summary:
        Nutrisystem was founded in 1970 and is headquartered in Horsham, Pennsylvania. Nutrisystem
offers weight loss, weight management, and nutrition products to its customers. Nutrisystem offers
multiple meal package options to its customers, home delivery of products, and online tools to track diet

Nutrisystem Meal Plan
    4 Week Prepackaged, portion-controlled meal plans available for both men and women and are
        offered in four different categories: Basic, Silver (elderly), Diabetic and Vegetarian.
    All packages except for the Men’s Basic are $299.95. The Men’s Basic Plan is $329.95.

Nutrisystem Select
    4 Week meal plan Combines original ready-to-go meals with fresh frozen food
    Offered in same categories as original Nutrisystem Plan
    All packages except for the Men’s Basic are $388.94 The Men’s Basic Plan is $418.94.

Note: All of the Nutrisystem programs require customers to supplement the packaged meal plans with
fresh fruit, vegetables and dairy items from the grocery store.

Product Distribution - Nutrisystem sells its products over the Internet, through a company 800 number,
through retail outlets and through the “QVC” television home shopping network. Once the product is
ordered, it is delivered directly to the customer’s home.

Online tools to track progress, Weight loss news and articles, and Weight loss counseling are available
with free membership
    Greater stratification of products, i.e. Nutrisystem has products geared towards different age
    Well established brand name with a marketing strategy that utilizes celebrity spokespeople

     Nutrisystem meals must be supplemented with fresh fruits, vegetables, and dairy products
       which adds additional cost to customers
     Nutrisystem does not utilize weight loss facilities or counseling
     Nutrisystem is not directly affiliated or endorsed by healthcare practitioners.

Fundamental Analysis:

                                                           Herbalife         Weight
                          Medifast, Inc.    Nutrisystem
                                                         International      Watchers         Industry
                            (MED)             (NTRI)
                                                             (HLF)           (WTW)
Market Cap                      382.24 M       541.81M          2.87B             1.97B       382.24M
Employees                             244            612        4,100            28,000          2.82K
Qrtly Rev Growth (yoy)            81.60%         -7.30%        23.00%           -10.10%         3.40%
Revenue (ttm)                   165.62M        527.73M          2.32B             1.40B          1.09B
Gross Margin (ttm)                75.67%         53.82%        46.03%            52.04%        34.02%
EBITDA (ttm)                     24.48M         61.63M       359.77M           390.02M         63.23M
Oprt Margins (ttm)                11.69%          9.45%        12.79%            25.89%         6.97%
Net Income (ttm)                 11.96M         27.76M       203.35M           177.34M             N/A
EPS (ttm)                          0.812           0.924        3.223                2.3          0.28
P/E (ttm)                          31.32           18.95        14.79             11.11          19.05
PEG (5 yrs expected)                 0.87           1.01          0.95              0.71          1.83
P/S (ttm)                            2.28           1.04          1.20              1.41          0.60
Beta                                 2.45           1.46          1.82              1.22

        Medifast gross margin is approximately 21.85% greater than Nutrisystem. In addition, Medifast’s
gross margin is more than twice the industry average. Medifast quarterly revenue growth percentage is
more than three times greater than any of its closest competitors and 24 times than the industry
average. In particular, Nutrisystem has a negative quarterly growth level which could signal that
business operations are contracting. Based on Medifast margins, the company is currently in the growth
portion of its business cycle. Medifast above average P/E ratio also suggest that investors feel that
Medifast will continue to deliver above average returns and increase its quarterly revenues. Medifast
PEG ratio of 0.87 suggests that the company is undervalued. Medifast P/S ratio is twice that of
Nutrisystem and nearly four times the industry average. Medifast P/S ratio indicates that the stock is
good in terms of revenue per share. Medifast beta at 2.45 is worth noting. Medifast is a very volatile
stock; consequently, extra due diligence must be exercised when determining a purchase time or price.
Institutional Ownership

         One of Medifast Institutional Holders, Renaissance Technologies is a hedge fund that specializes
in high frequency trading. Renaissance Technologies positions specific strategies are proprietary.
However, based on Renaissance Technologies overall investment strategy, we can assume they will not
be long in Medifast for very long. Medifast other institutional investors have more conservative
investment strategies and goals.
                                     MEDIFAST, INC. AND SUBSIDIARIES
                                     CONSOLIDATED BALANCE SHEETS
                                       As of December 31, 2009 and 2008

                                                                                       2009         2008

Current assets:
Cash and cash equivalents                                                           $12,708,000 $ 1,841,000
Accounts receivable-net of allowance for sales returns and doubtful accounts of
$100,000                                                                                676,000      448,000
Inventory                                                                            11,232,000   13,856,000
Investment securities                                                                 3,594,000    1,099,000
Deferred compensation                                                                 1,040,000      792,000
Prepaid expenses and other current assets                                             5,334,000    3,165,000
Note receivable - current                                                                46,000      180,000
Current portion of deferred tax asset                                                   100,000      100,000
Total current assets                                                                 34,730,000   21,481,000

Property, plant and equipment - net                                                  23,237,000   21,709,000
Trademarks and intangibles - net                                                      4,104,000    5,547,000
Deferred tax asset, net of current portion                                              193,000      150,000
Note receivable, net of current assets                                                  112,000    1,080,000
Other assets                                                                            379,000      350,000

TOTAL ASSETS                                                                        $62,755,000 $50,317,000

Current liabilities:
Accounts payable and accrued expenses                                                 4,966,000    5,130,000
Income taxes payable                                                                     22,000      102,000
Line of credit                                                                                -    3,164,000
Deferred compensation payable                                                           399,000      261,000
Current maturities of long-term debt                                                    796,000      257,000
Total current liabilities                                                             6,183,000    8,914,000

Other liabilities
Long-term debt, net of current portion                                                5,444,000    4,313,000
Deferred tax liability- non current                                                   1,553,000    1,869,000
Total liabilities                                                                    13,180,000   15,096,000

Stockholders' Equity:
Preferred stock, $.001 par value (1,500,000 authorized, no shares issued and
outstanding)                                                                                  -                -
Common stock; par value $.001 per share; 20,000,000 shares authorized; 15,438,941
issued and 15,031,103 outstanding and 14,585,960 issued and 14,313,768 shares
outstanding                                                                              16,000      15,000
Additional paid-in capital                                                           28,456,000 25,250,000
Accumulated other comprehensive income (loss)                                           159,000    (389,000)
Retained earnings                                                                    24,264,000 12,301,000
Less: cost of 367,838 and 272,192 shares of common stock in treasury                 (3,320,000) (1,956,000)
Total stockholders' equity                                                           49,575,000 35,221,000

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                          $62,755,000 $50,317,000

        Medifast has a solid balance sheet. Medifast is reasonable levered and has increased its amount
of cash on hand seven fold. Medifast increase in cash could indicate future plans for operation
expansion or business acquisitions.
                                 MEDIFAST, INC. AND SUBSIDIARIES
                                  QUARTERLY BALANCE SHEET

        Medifast continued to increase its cash and cash equivalents each quarter throughout 2009
which is indicates healthy sales operations. Medifast liabilities also remained relatively stable which
indicates that the company was not incurring any excess leverage during 2009.
                                   MEDIFAST, INC. AND SUBSIDIARIES
                                CONSOLIDATED STATEMENTS OF INCOME
                                       Years Ended December 31,
                                                                                  (Restated)     (Restated)
                                                                      2009          2008           2007

Revenue                                                           $   165,618 $      105,445 $        83,779
Cost of sales                                                         (40,293)       (25,332)        (21,464)
Gross profit                                                          125,325         80,113          62,315

Selling, general, and administration                                  (105,959)       (71,914)       (56,600)

Income from operations                                                 19,366          8,199          5,715

Other income (expense):
Interest expense                                                         (145)          (366)          (387)
Interest income                                                           155            149            105
Other income (expense)                                                    (83)          (132)           110
                                                                          (73)          (349)          (172)

Income before provision for income taxes                               19,293           7,850          5,543
Provision for income taxes                                             (7,330)         (3,016)        (2,117)

Net income attributable to common shareholders                    $    11,963 $        4,834 $        3,426

Basic earnings per share                                          $       0.89 $         0.37 $         0.26
Diluted earnings per share                                        $       0.81 $         0.34 $         0.25

Weighted average shares outstanding -
Basic                                                               13,515,318     13,126,534     12,960,930
Diluted                                                             14,736,639     14,329,525     13,644,149

        Medifast gross profit increased 28.6% from 2007 to 2008 and 56.4% from 2008 to 2009.
Medifast has been a very bullish stock for the past decade and. Medifast s recent earnings trends
indicate that the company is still has upward momentum and will consequently continue to grow.
                               MEDIFAST, INC. AND SUBSIDIARIES
                              QUARTERLY STATEMENT OF INCOME

       The company’s gross and net income increased every quarter in 2009. The quarterly increase in
income indicates that Medifast is a healthy company on the upswing.
                                  MEDIFAST, INC. AND SUBSIDIARIES

                                                   Years ended December 31,

                                                                                                         (Restated)         (Restated)
                                                                                         2009              2008               2007
                                                                                       (Audited)         (Audited)          (Audited)
  Cash flows from operating activities:
  Net income                                                                       $ 11,963,000 $         4,834,000 $        3,426,000
Adjustments to reconcile net income to net cash provided by operating activities
  from continuing operations:
  Depreciation and amortization                                                    $    5,267,000 $       4,574,000          3,471,000
  Realized loss on investment securities                                                   81,000           216,000            103,000
  Common stock issued for services                                                        207,000           152,000             31,000
  Treasury stock issued in legal settlement                                                     -            70,000                  -
  Stock options vested during period                                                            -                 -            100,000
  Stock options cancelled during period                                                         -           (77,000)                 -
  Excess tax benefits from share-base payments arrangements                               303,000                 -             39,000
  Vesting of unearned compensation                                                      2,151,000           852,000            641,000
  Net change in other comprehensive (loss) income                                         550,000          (711,000)           (13,000)
  Deferred tax asset                                                                      (43,000)          110,000            (54,000)
  Deferred tax liability                                                                 (316,000)          365,000           (766,000)
  Changes in assets and liabilities:
  (Increase) Decrease in accounts receivable                                             (228,000)            43,000           (43,000)
  (Increase) Decrease in inventory                                                      2,624,000         (4,675,000)         (926,000)
  (Increase) Decrease in prepaid expenses & other current assets                         (452,000)           693,000          (128,000)
  (Increase) Decrease in deferred compensation                                           (110,000)           282,000          (140,000)
  (Increase) in prepaid taxes                                                          (1,413,000)        (1,131,000)                -
  (Increase) in other assets                                                              (29,000)          (251,000)          (52,000)
  Increase (Decrease) in accounts payable and accrued expenses                           (162,000)           850,000         1,367,000
  Increase (Decrease) in income taxes payable                                             (80,000)          (700,000)          898,000
  Net cash provided by operating activities                                            20,313,000          5,496,000         7,954,000
  Cash Flow from Investing Activities:
  (Purchase) Sale of investment securities, net                                        (2,579,000)           129,000             (4,000)
  (Purchase) of property and equipment                                                 (5,118,000)        (7,429,000)        (5,151,000)
  (Purchase) of intangible assets                                                        (235,000)           (13,000)        (2,814,000)
  Net cash (used in) investing activities                                              (7,932,000)        (7,313,000)        (7,969,000)
  Cash Flow from Financing Activities:
  Issuance of common stock, options and warrants                                        214,000              30,000            216,000
  Proceeds (Repayment) of long-term debt, net                                         1,670,000            (264,000)          (586,000)
  Increase (Decrease) in line of credit                                              (3,163,000)          1,565,000          1,706,000
  Decrease in note receivable                                                           170,000             132,000            137,000
  Excess tax benefits from share-based payment arrangements                            (303,000)                  -            (39,000)
  (Purchase) of treasury stock                                                         (102,000)                  -           (309,000)
  Net cash provided by financing activities                                          (1,514,000)          1,463,000          1,125,000
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                 10,867,000            (354,000)         1,110,000
  Cash and cash equivalents - beginning of the period                                 1,841,000           2,195,000          1,085,000
  Cash and cash equivalents - end of period                                        $ 12,708,000 $         1,841,000 $        2,195,000
  Supplemental disclosure of cash flow information:
  Interest paid                                                                    $      145,000 $         367,000 $          387,000
  Income taxes                                                                     $    9,167,000 $       3,661,000 $        1,790,000
  Supplemental disclosure of non cash activity:
   Common shares issued for options or warrants                                    $            -    $        30,000    $            -
  Treasury stock issued in legal settlement                                        $            -    $        70,000    $            -
  Line of credit converted to long-term debt                                       $            -    $             -    $    2,156,000
  Treasury stock received in payment of note receivable                            $      931,500    $             -    $            -

          Medifast has had positive free cash flows for the past 3 years signaling that the company is
  healthy and actively involved in investing activities. From 2008 to 2009, Medifast had a 270% increase in
  cash flows generated via operating activities. The large increase in cash flows indicates that Medifast is
  positioned for growth.
                                MEDIFAST, INC. AND SUBSIDIARIES
                               QUARTERLY STATEMENT OF INCOME

         Free cash flows increased every quarter in 2009 indicating in that Medifast is a solid company
and a good investment. Medifast does not pay a dividend indicating that the company retains more
capital to reinvests in future financing.

Financial Summary:
        For the previous 2 years, Medifast has outperformed the S&P 500 and achieved a 2 year 460%
return. Medifast performance is the result of investor confidence and a paradigm shift to preventative
healthcare. Weight loss is a part of preventative healthcare and many physicians have been advocating
patients purse diet plans and in many cases, Medifast.
        Last year, Medifast earned $11.96 million on $165.6 million in revenue. Medifast 2009 earnings
and revenue are up 120% and 57% respectively from 2008. Medifast continual earnings growth indicates
that the company Is financially healthy and undergoing a positive growth cycle. Medifast is down 34%
from its all-time high achieved in late December. However, Medifast is up 25% in the last two months.
Technical Analysis

1-year chart

        It is worth taking note of the three pivot points on this chart. The heavy ones are at
around $15 and around $26. The price has just bounced from a smaller pivot at around $23,
and has broken the resistance at $26. At this point the chance of the price staying above $26 is
higher, since this level has become a support level.
        The uptrend since the past year had been broken in January, where the company missed
their earnings by $0.01 and shares fell. Since then, the downtrend that was born from this has
been stopped at the $15 level and we have been seeing recovery. This downtrend was broken
very recently, as price broke both the trend line and the $26 resistance.
        Price is more likely than not to continue climbing from this point on.
      3-year and 5-day vs. S&P 500

     Cheap, affordable food
     It works if you don’t cheat
     Industry has good growth potential, as people gain weight and become self-conscious.
     Medifast is vertically integrated, unlike most other diet companies, and may begin supplying
      them. Has shown faster growth than any other.
     Recommendation: Buy MED to fill services spot.

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