OK, first the depressing news….
According to the Centers for Disease Control and Prevention, in the United States, 35.9% of adults age 20 years and over are obese, and another 33.3% of adults age 20 years and older are overweight.
In other words, 69.2% of the population of our great nation needs to go on a diet.
Now, I might be included in those stats (I could drop a couple pounds), but what they tell me is that a whole load of us need the services of the stock featured in today’s article.
You see, this company has been helping people lose weight for decades.
And it has a big, and pardon the expression, “fat” yield of 8%.
So let’s not put our portfolios on a diet, but check out what NutriSystem (NTRI ) is serving up to investors.
Now, at first blush, NutriSystem might look a little, well, undernourished.
You see, after the stock peaked at more than $70 per share in 2006 and 2007, it plummeted with the rest of the market in 2008 and 2009.
And, except for a rally back up to $33 in December 2010, the stock’s slide has continued.
But NutriSystem seems to have bottomed out, bouncing off a low of almost $7 per share twice – once in November 2012 and again just last month.
It’s now trading near $8 per share, and that’s where the story gets interesting…
Trimming the Fat
NutriSystem reported earnings on May 1. Revenue shrunk, but that may have turned out to actually be a good thing for the company.
Why? Because the 18% decline in revenue in the first quarter compared to last year was due in part to NutriSystem’s new management team shedding unprofitable revenue streams.
Margins improved 5% in the quarter from the year-ago period and NutriSystem’s operating loss rose from improved 84%, from $6.8 million to only $1.1 million.
Best of all, net income from the quarter was $0.00, excluding one-time charges compared to the company’s estimate of a loss of $0.03 to $0.08 per share. (That’s certainly a heck of a lot better than last year’s loss of $0.16 per share for the first quarter.)
Looking forward, the company projects adjusted earnings per share in the range of $0.23 to $0.33 per share for the full year and $0.15 to $0.20 per share for the second quarter.
These improving figures, of course, will go a long way to sustaining the company’s cash distribution program…
A Hefty Dividend
The stock currently yields just a shade over 8%.
And the company has paid consecutively every quarter since starting the program in 2008.
Considering that the worst appears to be over for NutriSystem – and as long as the company maintains its current positive trajectory – I expect that the company will keep up the pace.
Now, this is a turnaround stock, so unlike some of our other suggestions here at D&I, there’s a bit more risk with NutriSystem.
But with the improving economy, and the likelihood that NutriSystem will deliver the goods in Q2, I see no reason the stock won’t climb back up to where it was in 2012 for potential gains of around 25% of that 8% dividend.