Weight Watchers International Inc. (NYSE: WTW) has enjoyed a solid reception to the Oprah Winfrey stake and promotion activity. On Wednesday shares were up more than 10% in strong trading volume on what is otherwise looking to be a very low volume trading day for most other stocks.
The driving force for the rally is that the Weight Watchers commercials with Oprah Winfrey have now started running right ahead of the New Year’s resolution crunch. There is just one problem for this continued rally: most seasoned investors might have expected more of a “sell the news” reaction. After all, Weight Watchers shares were under $7.00 in October and jumped up to about $18.00 initially and up to as high as $28.00 before coming back down to earth.
Tuesday’s closing price was $19.37, but shares were up 13% at $21.90 after more than an hour of trading on Wednesday. The average daily volume of 5.3 million shares had already been surpassed. Again, this is on the next to last trading day of the year, and most stocks are going to be lucky if they see half of a day’s normal trading volume — let alone over 100% of its volume in less than an hour!
Investors might want to consider what this Oprah stake and partnership may really mean. The Thomson Reuters consensus earnings estimates are from only six analysts. Still, the consensus expectations are $0.73 per share in 2015 and $0.75 per share in 2016. That is on a 21% drop in 2015 revenues to $1.16 billion and a recovery to only $1.17 billion in 2016 revenues.
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While Wall Street estimates are still lagging, the reality is that many investors are going to expect more than the consensus estimates. So, what has happened in recent weeks? Analysts already have raised earnings estimates. Less than 60 days ago, the consensus earnings estimate was $0.67 per share for 2015 and now it is $0.73. The real jump was seen in 2016 estimates, where the $0.53 per share from less than 60 days ago has now risen to $0.75. In short, analysts were looking for another big drop in 2016 until the Oprah investment and partnership.
The stock’s 52-week trading range is $3.67 to $28.05, and Weight Watcher’s consensus price target is roughly $19.20. The market cap is $1.4 billion.
Should we be seeing a “sell the news” reaction here? Or is this time different?
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