Medifast (MED) Pitch

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Pitch for Medifast stock in February 2011.

Pitch for Medifast stock in February 2011.

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  • 1. Medifast, Inc.!  Ticker: MED!  Price: $24.73 (2/7/11)!  Recommendation: BUY!  Price Target (12 months): $34.00Chris HemmelgarnSven KarlssonSarosh NentinFebruary, 2011 !"
  • 2. Investment Thesis!  Market Growth: Obesity increasing in United States!  Best Growth Opportunities Remain: Low penetration in markets with best demographics!  Immediate Access to Growth Opportunities: Invested in production and distribution capacity!  Market is does not fully understand/appreciate Multi- Level Marketing (MLM) Sales Force Structure!  Growth Prospects for Brick & Mortar are not fully anticipated Recommending BUY with a 12-month price target of $34.00/share representing 40% upside #"
  • 3. Medifast !  Designs, Produces, and Distributes Weight Management Products in the United States !  Market Cap: $360 Million !  Revenues: $238 Million !  Earnings: $19 Million !  A standard 4-week package for men costs $299.50 or less than $11 per day (>80% of all food required) !  Estimate 2-5lbs per week of weight loss – industry leading $"
  • 4. Two Key Market Drivers Weight Loss Market is driven primarily by two factors 1.  Disposable Income: diets are viewed as a “luxury” item 2.  Obesity: trending consistently upwards for (at least) past 25 years %"
  • 5. &()*+,"-.(/0)1"234/5"6787"209:+)" ;<=88>"!?@A" (*BMI !30, or ~ 30 lbs. overweight for 5’ 4” person)No Data <10% 10%–14% 15%–19% 20%-24% 25%-29% !30%
  • 6. &()*+,"-.(/0)1"234/5"6787"209:+)" ;<=88>"!??D" (*BMI !30, or ~ 30 lbs. overweight for 5’ 4” person)No Data <10% 10%–14% 15%–19% 20%-24% 25%-29% !30%
  • 7. &()*+,"-.(/0)1"234/5"6787"209:+)" ;<=88>"!??A" (*BMI !30, or ~ 30 lbs. overweight for 5’ 4” person)No Data <10% 10%–14% 15%–19% 20%-24% 25%-29% !30%
  • 8. &()*+,"-.(/0)1"234/5"6787"209:+)" ;<=88>"#DDD" (*BMI !30, or ~ 30 lbs. overweight for 5’ 4” person)No Data <10% 10%–14% 15%–19% 20%-24% 25%-29% !30%
  • 9. &()*+,"-.(/0)1"234/5"6787"209:+)" ;<=88>"#DDA" (*BMI !30, or ~ 30 lbs. overweight for 5’ 4” person)No Data <10% 10%–14% 15%–19% 20%-24% 25%-29% !30%
  • 10. &()*+,"-.(/0)1"234/5"6787"209:+)" ;<=88>"#DD?" (*BMI !30, or ~ 30 lbs. overweight for 5’ 4” person)No Data <10% 10%–14% 15%–19% 20%-24% 25%-29% !30%
  • 11. Market Growth !  The market for weight loss products is clearly growing !  60% of Medifast’s business is located in just 7 cities representing 4.2% of U.S. population !  None of these metropolitan locations areas are in the states with the worst obesity problems $D"
  • 12. Best Opportunities RemainN4.+:E/0>"&<"KL!M" ;4*)(>"PG" 2:E/,>"IJ" KL#M" GE,+4/>"&O" 8E/"G*(54>"H2" 2+:E/+E>"F2" 8E.E)4+E>"=Q" No Data <10% 10%–14% 15%–19% 20%-24% 25%-29% !30%
  • 13. Access to Opportunities !  Medifast has continued to invest in its business through the recent recession !  Recently built a second distribution plant in Dallas to double their capacity (online starting 4Q 2010) !  Estimated they now have capacity for $400 million in annual sales vs. current LTM revenues of $240 million !  Planning to double this capacity to $800 million in 2011 for $2.5 million CapEx $#"
  • 14. Sales Channels !  Direct Marketing !  Brick & Mortar !  Take Shape for Life Revenue by Segment LTM Revenue Growth by Segment $$"
  • 15. Sales Channels Revenue by Channel $%"
  • 16. Take Shape for Life Active Health Coaches $A"
  • 17. Take Shape for Life Monthly Average Revenue per Coach $B"
  • 18. Weight Control Centers Brick and Mortar Locations & Revenue $C"
  • 19. Direct Sales Direct Response Revenue v. Ad Spend $@"
  • 20. Comparable Companies!"#$%&()%#* +,-.*/( 3%/.*4(!%$( 89:,2;4*<(=80( +=B(9( +=B(9( +=B(9(G"/H%/<( +=B(9(G"/H%/<( G"/H%/<( )+3( 0#1"2 56337 >*?"/*(=@4/%( =>C+:D( E*F*&;*( +"4%2(E*F*&;*( =>C+:D( 89=( G"/H%/<( A+3 A+3 A+3 )+3 )+3 )+3 8=I(E%4,"Multi-Level Marketing ComparablesUSANA Health Sciences Inc. USNA $672.6 15.20x 8.95x 1.35x 1.3x 8.5x 13.6x 0.93Avon Products Co Ltd. 4915 $51.1 NM 7.86x 0.16x NM NM NM NMNatures Sunshine Products Inc. NATR $134.2 10.36x 5.29x 0.24x NM NM NM NMReliv International, Inc. RELV $21.7 11.41x 3.67x 0.20x NM NM NM NMNu Skin Enterprises Inc. NUS $1,963.8 15.89x 8.00x 1.26x 1.2x 7.3x 14.0x 0.93Pre-Paid Legal Services, Inc. PPD $631.5 10.46x 5.46x 1.30x NM NM NM NMYTB International, Inc. YTBL.A $3.8 NM 5.04x 0.13x NM NM NM NMMean - MLM Com ps Only 12.66x 6.32x 0.66x 1.3x 7.9x 13.8x 0.93Median - MLM Com ps Only 11.41x 5.46x 0.24x 1.3x 7.9x 13.8x 0.93CompetitorsSchiff Nutrition International Inc. WNI $232.3 13.46x 6.13x 0.91x 0.9x 7.7x 16.5x 2.06Nutraceutical Intl Corp. NUTR $154.3 9.81x 5.35x 1.00x 1.0x - 9.2x NMNutriSystem Inc. NTRI $552.4 22.23x 8.23x 0.97x 1.0x 6.1x 15.7x 0.90Herbalife Ltd. HLF $4,065.6 16.17x 9.40x 1.56x 1.4x 8.3x 14.1x 0.92Weight Watchers Intl, Inc. WTW $2,521.6 16.00x 10.36x 2.77x 2.7x 9.2x 13.1x 0.87Ediets.com Inc. DIET $39.0 NM NM 1.88x 1.2x NM NM NMMean - Com petitors Only 15.53x 7.89x 1.52x 1.4x 7.8x 13.7x 1.19Median - Com petitors Only 16.00x 8.23x 1.28x 1.1x 8.0x 14.1x 0.91 (1)Wtd. Average Mean - MLM Com ps & Com petitors 13.53x 6.80x 0.92x 1.3x 7.9x 13.8x 1.01 (1)Median - MLM Com ps & Com petitors 12.79x 6.29x 0.55x 1.2x 7.9x 13.9x 0.92Medifast Inc. (NYSE:MED) $375.7 18.55x 9.32x 1.45x 1.1x 6.4x 14.0x 0.56Source: CapitalIQ(1) Weighted Average Mean calculated using a 70% weighting on the MLM Comps and 30% on Competitors, based on the % revenue contribution of the "Tak e Shape for Life" business line $?"
  • 21. Relative Valuation!  Target price based on P/E multiple valuation!  EBITDA and Revenue multiple valuation further confirm premium %D"
  • 22. Valuation!  DCF Valuation supports price target from Relative Valuation %!"
  • 23. Key Risk Factors !  Low barriers to entry for competition or new entrant into the market may develop a similar product/ program !  New fad diets or other substitute products could take market share !  Slower Economic Recovery !  Supply Chain or Product Manufacturing Disruption %#"
  • 24. Nutrisystem (NTRI) %$"
  • 25. Nutrisystem (NTRI) !  Founded in 1971 !  Explosive growth until the early 1990’s when the company declared bankruptcy !  Decided to focus on online sales combined with national advertising in 1999 !  Strong growth through early 2000’s, but struggled over the last few years due to declining effectiveness of advertising and the recession !  Good company but 100% dependent on Advertising & Direct Sales. !  12-month price target of $21 (16x FY2011 EPS - $1.32) %%"
  • 26. NTRI Key Issue /)012-3-0&+" "S@DD7D"" %D7DR" "SCAD7D"" $A7DR"%&&()&"*++,-." !"#$"%&&()&" "SCDD7D"" $D7DR" "SBAD7D"" #A7DR" "SBDD7D"" #D7DR" "SAAD7D"" !A7DR" "SADD7D"" !D7DR" "S%AD7D"" A7DR" "S%DD7D"" D7DR" =J#DDC" =J#DD@" =J#DD?" =J#D!DT" =J#D!!T" <(U(/9(" VE.W(X/5"KR"4Y"<(UM" &Z(.EX/5"VE.5*/" 5&62$7-0" S%DD7D" %D7DR" S$AD7D" $A7DR" %&&()&"*++4-." !"#$"%&&()&" S$DD7D" $D7DR" S#AD7D" #A7DR" S#DD7D" #D7DR" S!AD7D" !A7DR" S!DD7D" !D7DR" SAD7D" A7DR" SD7D" D7DR" =J"#DDC" =J"#DD@" =J"#DD?" =J"#D!DT" =J"#D!!T" <(U(/9(" &Z(.EX/5"P/[43(" VE.W(X/5"KR"4Y"<(UM" %A"
  • 27. NTRI Sales %B"
  • 28. MED Sales %C"
  • 29. NTRI Earnings %@"
  • 30. MED Earnings %?"
  • 31. NTRI Historical P/E AD"
  • 32. MED Historical P/E 8#9"&(6"#$":2-0#12;7<" 17(=&" A!"
  • 33. Investment Thesis Recommending BUY with a 12-month price target of $34.00/share representing 40% upside!  Market Growth!  Best Growth Opportunities Remain!  Immediate Access to Growth Opportunities!  Market is Focused on Multi-Level Marketing (MLM) Sales Force Structure!  Growth Prospects for Brick & Mortar are not fully anticipated A#"