1. Medifast, Inc.
! Ticker: MED
! Price: $24.73 (2/7/11)
! Recommendation: BUY
! Price Target (12 months): $34.00
Chris Hemmelgarn
Sven Karlsson
Sarosh Nentin
February, 2011
!"
2. Investment Thesis
! Market Growth: Obesity increasing in United States
! Best Growth Opportunities Remain: Low penetration in
markets with best demographics
! Immediate Access to Growth Opportunities: Invested in
production and distribution capacity
! Market is does not fully understand/appreciate Multi-
Level Marketing (MLM) Sales Force Structure
! Growth Prospects for Brick & Mortar are not fully
anticipated
Recommending BUY with a 12-month price target of
$34.00/share representing 40% upside
#"
3. Medifast
! Designs, Produces, and Distributes Weight Management
Products in the United States
! Market Cap: $360 Million
! Revenues: $238 Million
! Earnings: $19 Million
! A standard 4-week package
for men costs $299.50 or less
than $11 per day (>80% of
all food required)
! Estimate 2-5lbs per week of
weight loss – industry leading
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4. Two Key Market Drivers
Weight Loss Market is driven primarily by
two factors
1. Disposable Income: diets are viewed as a
“luxury” item
2. Obesity: trending consistently upwards for
(at least) past 25 years
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11. Market Growth
! The market for weight loss products is clearly
growing
! 60% of Medifast’s business is located in just 7
cities representing 4.2% of U.S. population
! None of these
metropolitan
locations areas
are in the states
with the worst
obesity
problems
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12. Best Opportunities Remain
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13. Access to Opportunities
! Medifast has continued to invest in its business
through the recent recession
! Recently built a second distribution plant in
Dallas to double their capacity (online starting
4Q 2010)
! Estimated they now have capacity for $400
million in annual sales vs. current LTM revenues
of $240 million
! Planning to double this capacity to $800 million in
2011 for $2.5 million CapEx
$#"
14. Sales Channels
! Direct Marketing
! Brick & Mortar
! Take Shape for Life
Revenue by Segment LTM Revenue Growth by Segment
$$"
23. Key Risk Factors
! Low barriers to entry for competition or new entrant
into the market may develop a similar product/
program
! New fad diets or other substitute products could take
market share
! Slower Economic Recovery
! Supply Chain or Product Manufacturing Disruption
%#"
25. Nutrisystem (NTRI)
! Founded in 1971
! Explosive growth until the early 1990’s when the
company declared bankruptcy
! Decided to focus on online sales combined with
national advertising in 1999
! Strong growth through early 2000’s, but struggled over
the last few years due to declining effectiveness of
advertising and the recession
! Good company but 100% dependent on Advertising &
Direct Sales.
! 12-month price target of $21 (16x FY2011 EPS - $1.32)
%%"
33. Investment Thesis
Recommending BUY with a 12-month
price target of $34.00/share
representing 40% upside
! Market Growth
! Best Growth Opportunities Remain
! Immediate Access to Growth Opportunities
! Market is Focused on Multi-Level Marketing (MLM) Sales
Force Structure
! Growth Prospects for Brick & Mortar are not fully
anticipated
A#"