Bear of the Day: Medifast (MED) - Bear of the Day

By Zacks | August 18, 2014 AAA

Let’s face it America. We’ve packed on a few extra pounds over the years. Maybe it’s the burgers. Maybe it’s the beer. Maybe I’m just lazy. It’s probably all of the above. There are plenty of companies out there to help you get on the right track and lose that stubborn belly fat. Some of them do it by trying to get you back in the gym to exercise. Some want to give you a pill. And others try to get you to eat right. That’s exactly what our Bear of the Day has been trying to do. Get you to eat their “Just add water” soups, shakes, and meals.

Medifast (MED) stock has been struggling since mid-June. The company has recently been dropped down to a Zacks Rank #5 (Strong Sell). The company is engaged in the production, distribution, and sale of consumable health and diet products. Basically these are powder packets you add water to for one of your snacks throughout the course of the day.

This varies from some other diet providers in that Medifast does not provide you with what you’re supposed to scarf down for lunch. What it gives you is the sensible snacks you’re supposed to constantly stoke your metabolism with throughout the course of the day. Then it gives you guidelines for what your main meal should be that day.

It sounds easy enough, doesn’t it? But Medifast has struggled to impress analysts. Despite earnings surprises that average about 5 cents over the last four quarters, analysts have continued to revise their earnings estimates to the downside. Over the last 30 days analysts have dropped estimates for the current year from $1.84 per share down to $1.75 per share and for the next year down from $2.25 to $2.00. What doesn’t help the stock is the fact that the industry ranks in the Bottom 25% of our Zacks Industry Rank.

The stock’s chart has been a wild ride for investors over the course of the last two years. MED has whipsawed back and forth from as low as $21.75 to a high over $34 just a few short months ago. Today the stock currently trades down at the $27.11 level.

The recent sell-off from above $34 took the stock sharply under the 25 day moving average shifted by 5 days (25x5) and pushed stochastics well into oversold territory. In early July, with the stock finding a bid near $30 it looked like Medifast was going to make another run back at the highs and back above the 25x5. But the stock failed to push through upside resistance July 7th and subsequently headed lower.

After breaking the bottom end of support in mid-July, Medifast recently has entrenched to new lows approaching the $25 range. Now the stock is decidedly below its 25x5 and struggling to work itself away from the recent low. Stochastics remain oversold and the small cross we saw of bullish nature has done little to tug MED out of the hole.

Investors looking to invest in this industry can look at Zacks Rank #1 (Strong Buy) Treehouse Foods (THS).

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