Citigroup cut Weight Watchers (WTW ) to sell from hold.
CoolBrand International filed a lawsuit against Weight Watchers. Analyst Gregory Badishkanian says he thinks the profit expectations for North American company-owned, or NACO, operations will be disappointing, and is setting a hard situation for the second half -- even with a new third-quarter program launch. He says if NACO doesn't improve, investors may assume low-carb trends haven't moderated, or that low-carb trends have moderated but Weight Watchers couldn't benefit due to business-model issues.
Badishkanian believes the company may rely more on financial engineering to hit numbers in the second half, eroding its multiple premium. Badishkanian says the cancellation of a CoolBrands contract is concerning. He sees $1.78 2004 earnings per share, and $2.05 in 2005. He has a $35 target.