Medifast: Stellar 4th Quarter Results, Increases 2006 Forecast

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March 17, 2006 | SIN Picks | | Author Asif

Medifast Inc (MED) released stellar fourth quarter results on March 15th with revenue coming in at $10.2 million, a whopping 76% increase when compared to fourth quarter 2005 revenue of $5.8 million. The company earned 4 cents per diluted share and this represents their 25th consecutive profitable quarter. Interestingly they also upped their 2006 forecast by about 20% and now expect 2006 revenue to come in between $58 and $60 million. Some other highlights from the fourth quarter conference call are given below.

  • Full year 2005 revenue came in at $40.1 million, a 47% increase over 2004.
  • Customer acquisition costs decreased from $150 per customer down to $100 dollar per customer while revenue per customer increased from $525 to $575.
  • There will be no additional preferred stock dividend payments in 2006 and all preferred stock has now been converted to common stock.
  • Earnings outlook for 2006 raised to a range of 29 cents to 32 cents thanks to better than expected returns from advertising.
  • On the negative side, the tax rate is expected to go up to 34% or 35% in 2006 when compared to the current tax rate of 30%. Call center response time was also longer in the first quarter in 2006.

The stock traded up 16.52% on the day following the release of these results and is now registering gains of over 50% in the SINLetter Model Portfolio. Considering that Medifast earns 30 cents a share in 2006, the forward P/E works out to 27.3 based on the closing price of $8.18 on March 16th. For a company that has such an excellent growth rate it certainly appears to be undervalued.

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  1. brian
    September 26th, 2006

    hi, i picked up a little based on your analysis following the results.  do you have any updated thoughts on this holding?  i am down 32% on this holding and am wondering if i have held too long instead of cutting my losses…  any comments?  do you think this will see the teens again any itme soon?  thanks for insight!

  2. Asif
    September 26th, 2006

    Brian, all my recent thoughts about Medifast can be found in the comments section of this blog post.

    To summarize, I expect the stock to stay flat through the rest of this year and probably into the first few months of next year. It is extremely difficult (if not impossible) to predict short-term price movements and I really cannot tell you if it will see the teens anytime soon.

    I plan to hold Medifast both in my personal portfolio and the SINLetter model portfolio until next year, provided there are no adverse developments.

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