By Sam Boughedda
WW International Inc (NASDAQ:WW) shares surged more than 40% Tuesday after the stock was lifted to Buy from Neutral, with its price target raised to $13 per share by Goldman Sachs analysts on Tuesday.
They believe that even though the company's subscriber base and earnings power has been shrinking, its "new and compelling" obesity medication on-ramp solution is a catalyst for a turnaround.
"With the now completed acquisition of Sequence, WW will begin to offer a pharmaceutical-based clinical subscription service that it can integrate with its legacy behavioral-based weight management offering," the analysts explained.
As a result, with the new service offering, Goldman Sachs expects "a cohort of consumers to turn to it for help navigating what is poised to be an increasingly complex field of pharmaceutical solutions given (1) its legacy brand equity/credibility in the weight management field and (2) its ability to reach an extensive database of current (4 mn) and lapsed (20 mn) WW program users who have previously demonstrated a willingness to pay for help."
The analysts conclude that if WW captures only 3% of the addressable population TAM in the US, it "could add $2 of variable EPS contribution to the company," and they do not feel this potential is adequately captured in consensus estimates or the stock price.