Willis Towers Watson Public Limited Co

NASDAQ:WTW   12:45:57 AM EDT
+0.74 (+0.32%)
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Why Weight Watchers is Absolutely Collapsing

##Symbol## WTW

Weight Watchers International, Inc. (WTW)
4.767 -0.103 (-2.11%)
Sector: Consumer Services
Published by Capital Market Laboratories on 2015-06-15

What does the rating mean?
3-Month Stock Move: -53.1%
6-Month Stock Move: -82.3%
12-Month Stock Move: -78.8%
30-day Option Implied Volatility: 71.0%
Implied Stock Range: ($4.00, $5.50)
What does "implied stock" mean?

Weight Watchers stock is down 90% in two-years. A one time $85 stock is now trading below $5. rather than a complex web of factors, it really comes down to the core fundamentals at a 10,000 foot view. Revenue, operating margin, earnings, free cash flow and capital expenditures are collapsing. The company is collapsing. Let's look at the fundamental phenomena that are breathtakingly bad and have caused a 90% drop in stock price.

Fundamentals Rating Summary

Revenue (TTM US$ Millions) 1,393 1,643 1,827

Operating Margin (QTR) 1.080 1.15 1.27 FALLING

Net Income (TTM US$ Millions) 91 176 252

Levered Free Cash Flow (TTM US$ Millions) 63 202 -547 FALLING

Capital Expenditures (TTM US$ Millions) 8 25 50 FALLING

Stock Returns and Chart

WTW is down -53.1% over the last three months and down -82.3% over the last six months. The stock has returned -78.8% over the last year and as we stated prior, -90% in the last two-years.

Before we dig into the fundamental trends that drive the rating, let's look at a two-year stock chart with regression channel and 10-day momentum (on the bottom).
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Now let's examine the visualizations of the critical financial measures.

Revenue (TTM US$ Millions) 1,3931,6431,827

Revenue (TTM) peaked at over $1.8 billion for the full year of 2012. Today annual revenue stands at $1.4 billion. In a time when a huge proprotion of companeis are making all-time highs in revenue, WTW has seen the trailing-twelve-month number drop for 10 consecutive quarters.

What do all these numbers mean?
WTW's fundamental rating was hit hard by these results:
1. The one-year change was negative.
2. The two-year change was negative.
Finally, the five+ consecutive quarters of a down trend in revenue hurt the fundamental (star) rating..

Let's look at the revenue (TTM) trend in the chart below.

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Net Income (TTM US$ Millions) 91176252

Net Income (after tax profit) over the trailing twelve months (TTM) for WTW is falling. Earnings are down nearly 50% from a year ago, and 64% from two-tears ago.

Net Income (TTM) (aka annual earnings) has seen 13 consecutive quarterly drops and the quarterly number (not the annual) has now hit -$5 million (a net loss) from a peak of $80 million (profit).

In our next chart we plot Net Income (TTM US$ Millions) in the blue bars and the quarterly results in the gold line.

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Levered Free Cash Flow (TTM US$ Millions) 63202-547FALLING

Levered Free Cash Flow (FCF) (TTM US$ Millions) is a critical determinant of stock price since market cap is the present value of all future free cash flows. This has a terrible trend as well, down 70% from last year's $202 million. If we disregard the two anomalies in this chart below (the negative number and the crazy spike), and look holistically at the chart, we can see a degradation of FCF (TTM) from nearly $400 million in 2011.

For our next chart we plot Levered Free Cash Flow (TTM US$ Millions) in the blue bars through time.

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Capital Expenditures (TTM US$ Millions) 82550FALLING

I don't know if there is a "worst" chart in all of this, but if it's not net income, then perhaps it's capital expenditures (CapEx). CapEx is down 65% year-over-year using the trailing-twelve-month numbers, and is down 83% from two years ago. In fact, WTW has spent a total of $8 million on CapEx in the last year, compared with $54 million in 2013. Certainly the firm is feeling the pinch of a collapsing business, so expense controls a re critical, but my goodness, the firm may be suffocating its business altogether. The last time CapEx was this low was 2004.

In our final time series chart we plot Capital Expenditures (TTM US$ Millions) in the blue bars.

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Weight Watchers was a great business at one point. In fact, for a one-year period back in 2010-2011, the stock rose from $25 to $85. But as of today, the fundamentals are imploding, and the it's not a correlation we see with the stock price, but rather a causation. A turnaround story is my favorite kind, but if it's going to happen with WTW, the firm has a lot of work to do.