Medifast, Inc. (MED) analysts are raising estimates after a record setting quarter. The stock should see more investor attention after being added to a well known index.
Company Description
Medifast offers weight-loss programs based on clinically proven, portion-controlled meals. The plans offer customers to choose from 70 different meals, which are bought directly from Medifast. Additionally, the company offers coaching and support groups for its dieters.
Record-Setting Results
On May 5 Medifast announced a 75% jump in revenue for the first quarter, to almost $61 million. The company’s gross profit margin was up 140 bps, to 75.5%.
The higher revenue combined with wider margins led to the record net income of $4.9 million, which breaks down to 33 cents per share. Analysts were expecting 27 cents, marking the fifth consecutive earnings surprise.
Earnings Pop
Following the news, analysts raised full-year projections. The Zacks Consensus Estimate for full-year 2010 is up 11 cents, to $1.31. Next year’s estimates saw an 5 cent increase to $1.65.
Given the new estimates, expected growth rates are now 62% for this year and 26% for 2011.
Added Exposure
On Jun 28 shares of MED were added to the S&P SmallCap 600 Index. In the press release Medifast’s CEO said “We expect our addition to the S&P SmallCap 600 Index will help increase our visibility within the investment community and enhance shareholder value as we continue to execute on our strategic initiatives for long-term profitable growth and cash flow generation.”
While the forward P/E of 20 times isn’t going to turn any heads, after you factor in the growth rates you will get a PEF ratio of 0.8. Typically, a PEG of 1.0 or lower is considered a favorable price for growth.
The Chart
In the chart below you can see how drastically the consensus estimate has risen in the past year. However, the shares have not risen proportionately, leaving plenty of upside.
Bill Wilton is the Growth Stock Strategist for Zacks.com. He is also the Editor in charge of the market-beating Zacks Growth Trader service Zacks Investment Research
