Diet Company WW May Get Lift From Stress Eating During Lockdown

(Bloomberg) --

Gyms are closed, people are trapped indoors and stress eating is on the rise. That could be a future boon for WW International Inc. as American waistlines expand, according to Morgan Stanley.

The prospect was enough for analyst Lauren Cassel to raise her rating on the diet company to overweight from equalweight. “WW’s value proposition is actually stronger post Covid-19 than it was before,” she said, adding that the New York-based company fared better than expected during the 2008 financial crisis.

More than a decade ago, the stock lost more than half its value over a six-month period, while today the shares have peeled off more than 55% since mid-February. The stock losses during the fiscal crisis turned out to be an “overreaction,” according to Cassel. She expects WW shares could reach $47 in the most bullish scenarios. The potential to more than triple from Friday’s trading -- with shares down as much as 13% to $14.61 -- means rewards outweigh the risk. Her bear case is $5 a share.

Diet Company WW May Get Lift From Stress Eating During Lockdown

Not everyone on Wall Street was so optimistic, both BofA and Goldman downgraded the stock over the past week. The two banks were concerned about a slowdown in new Weight Watchers subscribers this year. Cassel cedes that WW is unlikely to meet its first quarter subscriber forecast “but that appears priced in,” she wrote in her note to clients.

She also slashed her 12-month price target to $24 from $37 to reflect lower sales and earnings over the next two years. There is a chance she acknowledges that if the recession is deeper and longer than expected consumers could stop buying non-essentials -- like weight loss subscriptions.

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