The Wal-Mart Effect

“I do want to take a check on some shares of Nutrisystems moving sharply in the after hours session. You see the spike there. There is news it has reached a deal to sell its meals at Walmart. Certainly a huge boost selling its meals at the world’s biggest retailer. I mean, this is a huge story for as a matter of fact, it was September 17th that there was an enormous amount of call buying looking at the up-side strikes at the time. They already got one move up to stock pulled back again, and now you get this today. This is a big announcement for Nutrisystem.

Big short interest in this stock as well. So people are going to get squeezed probably big-time look for a big volume day. But this stock should continue higher.

Isn’t it amazing as an owner of Walmart everything you mention in a sentence with Walmart runs. Walmart just stays flat. Slow and steady.” — CNBC’s Fast Money 10/5/2009

Shares of Nutrisystem (NASDAQ:NTRI) surged more than 25% in morning trading after yesterday’s announcement that their health food starter pack will be appearing at a retail store for the first time. Well, this is not just any retail chain, the two-week starter meal pack will be available at more than 3200 Wal-Mart Stores (NYSE:WMT). The packs will sell for $148 and will also be available on the world’s largest retailers website. The positive reaction to the product placement has sent the stock higher, and in addition to that there are undoubtedly a number of shorts covering their positions.

This is a huge development for the company and will get their products much wider exposure. Management said that they are not anticipating a spike to fourth quarter results because the company will not make a marketing push before the holidays. However, that would lead us to believe that NutirSystem will make their big push for the post-holiday diet period, which is always a popular time. It is amazing the effect that just announcing that your product will be placed in a Walmart can have on a company.

We are reaffirming our Fairly Valued valuation as of this week’s report. There is no doubt the placement in Walmart will contribute to sales growth, but we prefer not to speculate about those future sales. Our methodology is much more adept at finding securities that are priced outside of their historically normal price ranges based on current, known fundamentals. After today’s 20%-plus run-up in the stock we do not think that the price is particularly attractive. For those that hold NutriSystem shares, this is great news and should contribute to sales growth which we can always cheer, especially since the company’s sales have yet to return to their peak of 2007.

NutriSystem: The WalMart Effect

About Ockham Research 645 Articles

Ockham Research is an independent equity research provider based in Atlanta, Georgia. Security analysis at Ockham Research is based upon the principle known as Ockham's Razor, named for the 14th- century Franciscan friar, William of Ockham. The principle states that a useful theory should utilize as few elements as possible, because efficiency is valuable. In this spirit, our goal is to make the investing environment as simple and understandable as possible, yet no simpler than is necessary.

We utilize this straightforward approach to value over 5500 securities, with key emphasis given to the study of individual securities' price-to-sales, price-to-cash earnings and other historical valuation ranges. Our long term value investing methodology is powered by the teachings of Ben Graham and it has proven to be very adept at identifying stock prices that are out of line with fundamental factors.

Ockham Research provides its research in a variety of forms and products including our company specific reports, portfolio analytics tools, newsletters, and blog posts. We also offer a white labeling research solution that can give any financial services firm their own research presence without the time and cost associated with building such a robust coverage universe of their own.

Be the first to comment

Leave a Reply

Your email address will not be published.


*