Medifast (MED) Rallies More Than 25% in 6 Months: Here's Why

Medifast, Inc. MED appears to be on solid grounds, with its shares up 28.7% in the past six months compared with the industry’s rise of 13.3%. The company is gaining on strength in its OPTAVIA lifestyle solution and coaching support system, which was also reflected in the company’s fourth-quarter 2020 results. Quarterly earnings and sales increased year over year and the latter beat the Zacks Consensus Estimate.

Management stated that 2020 was a solid year for the company, with its independent OPTAVIA coaches attracting and retaining a solid number of new clients. Medifast saw considerable earnings and revenue growth, together with a record level of active earning coaches in 2020, despite the pandemic-led challenges. The company is committed toward making further investments to improve its infrastructure to aid growth. Further, Medifast is well placed to encash on the opportunities arising from consumers’ rising inclination toward health and wellness in the United States as well as other parts of the world.

Incidentally, management noted that the year-over-year top-line growth trend in January 2021 was in line with or even better than the trend witnessed in the fourth quarter. Though Medifast stated that top-line comparisons with the second to the fourth quarter of 2020 are likely to be tougher compared with with the first quarter, the company is on track to support a $2-billion revenue business by 2021-end.

MEDIFAST INC Price, Consensus and EPS Surprise

MEDIFAST INC price-consensus-eps-surprise-chart | MEDIFAST INC Quote

Medifast’s Growth Engine

OPTAVIA-branded products formed 87.2% of consumable units sold in the fourth quarter, up from 83% in the preceding quarter. Incidentally, total active earning OPTAVIA coaches jumped 39% to 44,200. Further, average revenue per active earning OPTAVIA coach came in at $5,932, up from $5,229 in the same period last year. Certainly, the relevance of the company’s offerings amid an environment where consumers are choosing health and wellness options has been an upside.

OPTAVIA follows a holistic approach by focusing on six key areas of a human being, namely weight, eating and hydration, motion, sleep, mind and surroundings. Further, OPTAVIA combines scientifically-proven programs, effective products as well as guidance from its coaches to help consumers lead a healthier lifestyle. The OPTAVIA product line is sold through its community of independent coaches who offer support and guidance to their clients. In partnership with OPTAVIA coaches, franchise partners, resellers and its Scientific Advisory Board, Medifast offers comprehensive wellness products and programs that focus on creating. We note that the company’s constant focus on developing tools and programs to increase the efficiency of coaches has been yielding results.

Medifast is undertaking a number of measures to drive growth even amid the coronavirus outbreak. The company is ramping up its long-term supply-chain efforts to ensure that it is able to manage the expected growth in the next few years. The company began a project to rationalize its SKUs last year, which helps it increase focus on more popular and profitable products as well as place increased emphasis on its OPTAVIA brand. Medifast is committed toward enhancing supply-chain capacities to cater to product demand across key items, alongside strengthening operational optimization in all areas of the manufacturing and distribution channel. Notably, the company had earlier made certain moves to expand capacity in powder and bar manufacturing as well as distribution. Medifast remains focused on scaling up new as well as existing co-manufacturers, which helps it lower risks by diversification and capacity expansion.

Apart from this, Medifast is focused on making technological investments, as part of which it opened a new technology center in Utah in 2020 beginning. The company’s core technological initiatives have included alpha testing of two new apps, which are focused on coaches and clients. These include the OPTAVIA Coach Connect app and the OPTAVIA Client app. In fact, in the first half of 2021, management plans to launch the beta versions of both apps, which are likely to enhance efficiency further.

All said, we believe that the Zacks Rank #2 (Buy) company is set to keep its solid show on. The Zacks Consensus Estimate for 2021 has increased from $10.72 to $10.85 per share, over the past 60 days.

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