Medifast, Inc. (NYSE:MED) just released its latest quarterly results and things are looking bullish. It was a decent earnings report, with revenues and statutory earnings per share (EPS) both performing well. Revenues were 12% higher than the analysts had forecast, at US$271m, while EPS of US$2.91 beat analyst models by 17%. Following the result, the analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. Readers will be glad to know we've aggregated the latest statutory forecasts to see whether the analysts have changed their mind on Medifast after the latest results.
After the latest results, the three analysts covering Medifast are now predicting revenues of US$1.03b in 2021. If met, this would reflect a substantial 23% improvement in sales compared to the last 12 months. Per-share earnings are expected to jump 28% to US$10.37. Before this earnings report, the analysts had been forecasting revenues of US$1.01b and earnings per share (EPS) of US$10.12 in 2021. It looks like there's been a modest increase in sentiment following the latest results, withthe analysts becoming a bit more optimistic in their predictions for both revenues and earnings.
Despite these upgrades,the analysts have not made any major changes to their price target of US$197, suggesting that the higher estimates are not likely to have a long term impact on what the stock is worth. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. The most optimistic Medifast analyst has a price target of US$250 per share, while the most pessimistic values it at US$160. This shows there is still a bit of diversity in estimates, but analysts don't appear to be totally split on the stock as though it might be a success or failure situation.
Another way we can view these estimates is in the context of the bigger picture, such as how the forecasts stack up against past performance, and whether forecasts are more or less bullish relative to other companies in the industry. We can infer from the latest estimates that forecasts expect a continuation of Medifast'shistorical trends, as next year's 23% revenue growth is roughly in line with 27% annual revenue growth over the past five years. Compare this with the wider industry, which analyst estimates (in aggregate) suggest will see revenues grow 7.7% next year. So although Medifast is expected to maintain its revenue growth rate, it's definitely expected to grow faster than the wider industry.
The Bottom Line
The biggest takeaway for us is the consensus earnings per share upgrade, which suggests a clear improvement in sentiment around Medifast's earnings potential next year. Pleasantly, they also upgraded their revenue estimates, and their forecasts suggest the business is expected to grow faster than the wider industry. There was no real change to the consensus price target, suggesting that the intrinsic value of the business has not undergone any major changes with the latest estimates.
With that in mind, we wouldn't be too quick to come to a conclusion on Medifast. Long-term earnings power is much more important than next year's profits. We have forecasts for Medifast going out to 2022, and you can see them free on our platform here.
You should always think about risks though. Case in point, we've spotted 1 warning sign for Medifast you should be aware of.
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