November 7, 2018
At first, it didn't look pretty. Shares of Medifast Inc. (MED) plunged after the nutrition company reported its third-quarter results. Apparently, there were conflicting reports on whether Medifast met or missed analysts' expectations.
However, appearances can be deceiving, and there's much more to the Medifast story than meets the eye. My readers know that I currently recommend MED in several of my newsletters: Growth Investor, Breakthrough Stocks and Platinum Growth Club. So, let's get to the bottom of today's selloff and what our best action is going forward.
First, let's review Medifast and why I'm recommending it right now. Based in Maryland, Medifast is a nutrition and weight-loss company that provides several programs to help people lose weight and eat healthier. The company is known for its Medifast Meals, which are fortified with nutrients and vitamins and feature low-fat protein and fiber. So the meals provide essential nutrition, while helping people lose weight.
Medifast is primarily an American company, with headquarters in Baltimore, Maryland. But the company is looking to expand in the Asia-Pacific region in 2019. In the meantime, Medifast's products remain a hot commodity among Americans looking to live healthier lifestyles.
And up until last night, Medifast's earnings had been a hot commodity on Wall Street. Medifast has a strong earnings surprise track record, having posted double-digit earnings surprises for three of the past four quarters. However, when Medifast announced earnings that were in-line with analysts' estimates last night, investors had a kneejerk reaction.
Make no mistake: The third-quarter results were excellent. Compared with Q3 2017, sales skyrocketed 80.3% to $139.2 million. This beat the $125.8 million consensus estimate by 10.7%. Over the same period, net income soared 106% to $13.8 million, or $1.14 per share. This met analysts' expectations of $1.14 EPS.
As I mentioned earlier, there were conflicting reports about whether Medifast met or missed estimates. Some estimates had been calling for $1.15 EPS. In that case, Medifast would've posted a 0.9% earnings miss.
With any other company, such a small miss would not have been a big deal. However, because MED had been on a nice run leading up to the report, investors looked for any and every excuse to take profits. And that's what happened.
As for me, I see this as a buying opportunity. There was nothing wrong with Medifast's third-quarter report. And, given Medifast's sunny outlook for the rest of the year, I expect a big rebound will be coming.
You see, Medifast also raised its outlook for Q4 and FY 2018 last night. This quarter, the company expects that revenue will range between $137.3 million and $142.3 million, and that earnings will range between $1.15 and $1.20 per share. That represents between 76.0% and 82.4% annual sales growth and between 91.7% and 100% annual earnings growth. The revised guidance is also well above the Street view of $130.2 million in sales and $1.16 EPS.
For FY 2018, Medifast is targeting revenue between $492.5 million and $497.5 million and earnings between $4.45 and $4.50 per share. Compared with 2017, this represents between 63.3% and 65.0% sales growth and between 94.3% and 96.5% earnings growth. This is also above analysts' estimates of $471.2 million in revenue and $4.48 EPS.
In my opinion, those who sold MED today are going to be kicking themselves later. Medifast has stunning forecasted sales and earnings, and it trades at just 25 times forecasted earnings. As an added bonus, it offers a 0.9% annual dividend yield.
As a result, it's one of a few stocks that rates well in both Portfolio Grader and Dividend Grader. As a growth stock, it earns a straight A. As an income stock, it earns a solid B. So, I'm going to keep it in my premium newsletters.
The bottom line: MED is a more volatile stock, as we saw with today's pullback. However, if you're looking for a dynamic growth opportunity, I consider MED a buy on the dip.
That's all I have for you this week—I'll be back online on Monday with your latest Portfolio Grader upgrades and downgrades.