Sector Snap: Weight loss firms rated 'Overweight'

Associated Press

NEW YORK (AP) — Companies that provide weight-loss products and services are poised to capitalize on growing concerns over obesity, an analyst said Friday as he initiated coverage of Herbalife Ltd. and Weight Watchers International Inc.

Brian Wang of Barclays Capital said in a client note that about 70 percent of the U.S. population is overweight, while the rest of the world is at 25 percent and climbing. With so many people affected by obesity, weight-loss companies have growing potential markets.

Wang, who started both Herbalife and Weight Watchers with "Overweight" ratings, said that the companies' current stock prices don't reflect their full potential. The rating indicates Barclays expects the stocks to outperform.

Herbalife, a nutrition and weight loss company, has benefited from transitioning from selling bulk products infrequently to selling individual servings for a nominal fee on a daily basis, Wang said.

"This has expanded the number of people who can afford its products, increased distributor retention and engagement and driven very strong financial results for the past several years," the analyst wrote.

Wang added that Herbalife's more than 80 markets don't appear to be fully saturated yet, "so we believe it can achieve strong growth for many more years."

Herbalife's stock climbed $3.18, or almost 5 percent percent, to $70.06 in afternoon trading, approaching its 52-week high of $70.35.

Wang said Weight Watchers should be able to grow its business for at least the next several years through such initiatives as international expansion, building up its online business, advertising to men for the first time, developing new products and remodeling and relocating stores.

Shares of Weight Watchers, which is based in New York, added $1.73, or 2.2 percent to $79.42.

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