Weight Watching at KCI

05/16/2003 12:00 am EST


Stephen Leeb

Founder and Research Chairman, Leeb Group

Few topics are as widely discussed among the public as weight. Indeed, there are few not on some form of a diet. And while not everyone is successful in their goal of losing weight, there is no dearth of those trying, whether it be at the gym or via a food-oriented program. Here, Stephen Leeb discusses one of the nation's most successful such programs - Weight Watchers.

"Among our healthcare recommendations, we're sticking with alternate companies that are leveraged to demographic trends but depend only on the commercial marketplace. A superb example is Weight Watchers International (WTW NYSE). Obesity is one of the nation's greatest health threats. In the past decade, obesity has increased by a third in the US, while the weight of the typical American has risen by more than seven pounds. Obesity is directly associated with the diabetes epidemic and many other ills. At the same time, it's becoming increasingly well recognized that low body weight is powerfully correlated with longevity. The weight loss market is nearing $40 billion and growing rapidly.

"Weight Watchers, a worldwide franchise that offers support groups, an accepted weight loss system and weight loss products, is by a wide margin the surest way of playing the compelling need to control obesity. Once part of Heinz, Weight Watchers was created by a leveraged buyout several years ago. Every important metric, from revenues to free cash, is currently growing at 20% or more. Earnings are expected to grow at a 25% annualized rate during the next five years, and as debt is paid back from the buyout, free cash will grow even faster. We expect 2004 earnings to top $2.00 a share, which leaves the stock with a price-to-earnings growth ratio of less than one. Buy Weight Watchers up to 50."

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