Up until now, weight loss was a personal issue and social stigma. That’s all about to change since the American Medical Association (AMA) has voted to recognize obesity as a disease. This is going to be a huge long-term boost to Weight Watchers International, Inc. (NYSE:WTW), NutriSystem Inc. (NASDAQ:NTRI), and Medifast, Inc. (NYSE:MED).
Obesity has long been an issue associated with an inability to control one’s habits. Eating right and exercise were the generally accepted solution to the problem. However, for many people, the ability to follow a healthier routine is just too difficult.
Being overweight leads to many ills, including diabetes. Such complications, though, are not certain and take time to develop, so there’s often no impetus to deal with weight right away. However, once a health condition like diabetes is diagnosed, dealing with the problem is expensive and life altering in a not so positive way.
To get ahead of such medical issues, the AMA has decided to label obesity as a disease. That will allow it to be treated earlier, make people take excessive weight gain more seriously, and likely lead to third party payments. That last one is a huge opportunity for companies dealing with weight loss.
The Leader in the Space
Weight Watchers International, Inc. (NYSE:WTW) is a global giant in the weight loss business. The key to its success is building communities that provide mutual support on a common goal. This differentiates its business model and makes customers very loyal. The company’s brand is well known and it has a massive store base, which furthers the appeal.
The company doesn’t try to directly control a customer’s food intake, instead focusing on teaching people how to eat using a point system. That said, the brand is so strong that Weight Watchers International, Inc. (NYSE:WTW) has been able to partner with restaurants and food processors to give its “seal of approval” to select foods.
Because Weight Watchers International, Inc. (NYSE:WTW)’ business model is group based, it would be very easy for third party payers to participate. Weight Watchers could simply track attendance or set up groups within corporate settings for a fee. Either one could materially increase the company’s customer base.
Sales and earnings dipped during the 2007 to 2009 recession, but have been headed higher since. The dividend was recently increased, as well. With a trailing price to earnings ratio of about 10, the shares are relatively cheap. The AMA’s aggressive stance on obesity could be the catalyst needed to push the top and bottom lines higher.
Cooking for You
NurtiSystem takes a different approach to weight loss. It designs and sells meal plans, taking over the food choice decision from its customers. That’s an expensive proposition, however, and the recession wasn’t kind to discretionary spending. Sales have fallen every year since 2007. Earnings dipped into the red last year.
That’s not a particularly appealing portrait. However, if obesity is a disease, then a medical treatment can be prescribed. Since some people clearly have difficulty controlling their eating habits, NutriSystem Inc. (NASDAQ:NTRI) is an obvious and easy solution. Adding to the appeal here is that the company has meal plans designed specifically for diabetics. That gives it a chance to serve both the obesity and diabetic markets.
This is a high-risk turnaround play. That said, the company has no long-term debt and $35 million in cash, as of the first quarter. The AMA ruling could mark an important turning point.