Valuation Scorecard: Stock Rating F-Lowest (3/19/24)-Medifast Inc. (MED).

Medifast’s common shares will need to reach $63 to achieve average annual stock market performance of 9.0% over the next 6 years. Upper quartile performance will require a $74 Medifast stock price by 2029. At the current price of $38, what is the market’s view of Medifast’s future operating performance?

Executive Summary

• Medifast’s important characteristics: high financial strength, very high profitability, stability, and very low expected growth. Profitability is a big positive influence on Medifast’s valuation while Growth is a big negative influence.
• Very low valuation, lagging shareholder returns. Current valuation levels are very low relative to the Medifast Peer Group. Recent market returns have substantially underperformed the Medifast Peer Group. Total shareholder returns expected to significantly beat the overall equity market. Based on current investor expectations, Medifast shares should reach a level of $28 by 2029 — an 14.7% per year total shareholder return. A 2029 stock price of $63 would reflect median performance and a price of $74 would be required to reach upper quartile performance.
• Medifast’s past growth is slightly below average. Historical growth has been below average relative to the Medifast Peer Group and forecasted growth is relatively very low. EPS Growth, Asset Growth, Revenue Growth, and Equity Growth have all lagged. These factors have negatively affected market perceptions of Medifast. Medifast’s historical income statement growth and balance sheet growth have diverged. Revenue growth has paralleled asset growth; earnings growth has fallen short of equity growth driving erosion in return on equity.
• Profitability has been Medifast’s biggest valuation strength. Pretax ROA, Asset Turnover, and Return on Equity are group leading. These factors have strengthened market perceptions of Medifast. The company has very high excess cash and will have to work to reinvest at attractive returns to support profitability and valuation.
• Medifast’s risk profile is neutral. Overall variability has been very high with very high revenue variability, very low E.P.S. variability, and above average stock price volatility. Financial Strength is relatively very high and earnings’ expectations are very low. The debt/capital ratio has been relatively steady.

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