October 28, 2015 / 6:28 PM / 4 years ago

Short sellers double down on Weight Watchers after Oprah invests

SAN FRANCISCO (Reuters) - Bets against Weight Watchers International appear to have spiked after an investment by media mogul Oprah Winfrey led the troubled diet brand’s shares to double.

A sign for Weight Watchers is displayed at office in lower Manhattan, New York October 19, 2015. REUTERS/Brendan McDermid

Borrowing in Weight Watchers shares jumped 25 percent last week after the celebrity disclosed she was buying 10 percent of the company, according to lending data from SunGard’s Astec Analytics, which provides a strong glimpse into short-selling activity.

Short sellers borrow shares and sell them, hoping to buy them back later for less to return to the lender.

A favorite of short sellers in recent years, Weight Watchers is suffering from a shift by consumers to free calorie-counting apps on smartphones as well as fitness tracking devices from companies including Fitbit.

News on Oct. 19 of Winfrey investing in Weight Watchers led its shares to rally 150 percent over five days, even as an upcoming quarterly report is expected to show a double-digit sales decline.

“Though the cash market seems to attribute paranormal stock-picking powers to Oprah, short sellers are seemingly more cautious,” SunGard said in a report on Wednesday.

Weight Watchers now trades at 29 times expected earnings, pricey compared with rival Nutrisystem at 21 times earnings.

With active online subscribers down a fifth from a four-year high last March, Winfrey’s frankness about her decades-long struggle with weight loss may help revive the brand.

“With so many free apps, it’s going to be difficult in the near-term to materially improve their operating performance,” said S&P corporate ratings analyst Diane Shand. “But Oprah might bring a different perspective.”

From July through mid-October, 27 percent or more of Weigh Watchers’ outstanding shares were shorted, far above the average rate of 4.1 percent for consumer discretionary companies, according to Thomson Reuters data.

The stock has lost about 80 percent from highs in 2011 and on Wednesday it was down 0.48 percent at $16.61.

Weight Watchers is due to hand in its third-quarter report card on Nov 5. Analysts on average expect it to post a 23 percent drop in revenue from the same time last year, according to Thomson Reuters data.

The average estimate for earnings per share is 29 cents, although the SmartEstimate considering analysts with above average track records is for 28 cents per share.

Reporting by Noel Randewich; Editing by Alan Crosby

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