Two weeks from now, WW International (WW 3.86%), the company formerly known as Weight Watchers, will report its final earnings for 2023. Investors are nervous — but a bit more hopeful today than in weeks past.
Ever since Novo Nordisk began selling diabetes and weight loss drugs Wegovy and Ozempic en masse, and especially after rival Eli Lilly announced the wide availability of its rival weight loss drug Zepbound this month, investors have been scared of what these big pharma offerings might do to WW International’s diet business. The company’s shares have been cut in half since the end of December.
Today, however, the stock is rising 6.4% through 11:30 a.m. ET — and I think investors have Morgan Stanley to thank.
WW International vs. big pharma
In a note last week, investment bank Craig-Hallum warned that interest in diet companies such as WW International is “down significantly” since big pharma began selling weight loss drugs. “Downloads of the WW [app] were down 43% y/y [year over year]” in the first week of 2024, warned the banker. And GLP-1 medications, such as Wegovy, Ozempic, and now Zepbound, appear to be the reason why.
So is it time to sell WW International stock?
Not so fast, says Morgan Stanley. In a note out this morning, covered on TheFly.com, Craig-Hallum’s rival argues that data on the 2024 post-holidays diet season might not be great — but it’s actually “far better than the stock price movement would imply.” After all, simple math tells you that if downloads are down 43% but the share price is down more than 50%, there’s a mismatch between how bad the news really is and how bad investors think it is.
Is WW International stock a buy?
On Tuesday, Feb. 6, 2024, investors are going to find out if Morgan Stanley is right about that.
Heading into WW International’s fiscal Q4 2023 earnings report, analysts have the company pegged for an 8% decline in sales and a $0.06 per-share loss — which sounds bad. But if true, it would still represent a big improvement over the $0.46 per share that WW International lost in Q4 a year ago.
It’s also worth pointing out that analysts, on average, see 2024 as a year of improvement for WW International, with the company returning to (non-GAAP) profitability this year, and maybe even generating some free cash flow.
I still feel that things aren’t looking great for WW International right now. Burdened with debt and likely to report GAAP losses both last year and this year, the company’s not in a great place to now compete with new miracle weight loss drugs from big pharma. But that doesn’t necessarily mean the stock deserved to lose half its market value in the space of a month.
Kudos to Morgan Stanley for pointing that out.
Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.
