Soon to make New Years' resolutions, many Americans will vow to shed pounds, and Weight Watchers International is looking to cash in on future loss.
Credit Suisse analyst Charles Boorady says the weight-loss company has reason to celebrate as its customers start foregoing the egg nog.
Lowering health-care costs is, he says, is the number one reason, as insurance companies such as UnitedHealth Group incorporate Weight Watchers into their anti-obesity programs.
"I think the potential is enormous. It cost 50 percent more to cover health-care costs for someone who is obese versus someone at normal weight. It's a big focus of employers and insurers. We think Weight Watchers has a unique franchise to address that opportunity," says Boorady.
Boorady cited increased traffic to the online business and increased marketing to men as the secondary reasons the company will improve over the long term.
"Online business brought $400 million in revenue. The stock is worth what the online business alone is doing for the company, and we don't think investors have given them credit for that," he says.
An upcoming promotion by famous baskeball star Charles Barkley, intended to attract male customers, may increase the customer base.
Investor reviews are mixed about the 63-year-old company, however. The stock dropped 20 percent since the third-quarter earnings were issued this year, but Boorady says the long-term outlook is good.
Compared to its competitors, Weight Watchers brought in $1.45 billion in revenue, followed by $509 milion from Nutrisystem, and $426 million from Jenny Craig, respectively.
"We're recommending this to investors that can see beyond the first quarter," added Boorady, reasoning that the work employers, the government, and insurers are doing to reduce health-care costs will have a long-term effect on the company's bottom line.
Credit Suisse has an $82 price target on Weight Watchers, which closed trading Wednesday at $57.25.
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Analyst Charles Boorady does not own stock in Weight Watchers. Investment banking clients of Credit Suisse own stock in the company.