Craig-Hallum downgrades WW to Sell, sees stock outperformance as overreaction

As previously reported, Craig-Hallum downgraded WW to Sell from Hold with a $4 price target. The firm notes that while a believer in WW’s product and mission, it is hard to justify Tuesday’s 79% move in the stock, which appears to have been driven by excitement about the company’s recently announced plan to acquire a telehealth business that offers prescription medicines like Wegovy and Ozempic. While Craig-Hallum thinks the acquisition is a smart move to protect market share as Big Pharma enters the weight loss category, the M&A news was accompanied by Q1 guidance that calls for a 21% year-over-year decline in sales and a $20M year-over-year decline in EBITDA. WW’s core business is declining double-digits for the third year in a row, and profitability has eroded to the point that the firm no longer expects the company to generate positive free cash flow this year.