Medifast Price $82
In traditional VIC formatting - I apologize.
Medifast has been written up twice, in 2013 and 2014. The stock since has been a 3x+. I think it is time
to go long again.
Medifast is dietary nutritional company that makes money by selling its products. Its biggest product
line is Optavia, representing ~95% of revenues. Its competition includes WW, Nutrisystem and other
diets. Medifast was founded in 1980 by William Vitale, a medical doctor. His products were sold directly
to other doctors, who in turn prescribed them to their patients.
If you screen for Medifast, you will see that between 2010 and 2016 the company’s revenues did not
change much (slightly positive) and that adj. EBITDA was around 14%. The company is capital light, so it
generates a decent amount of cash (the company currently pays a 3.5% dividend as well as purchases
back stock). During that time the company was run primarily by the MacDonald family (Michael and
Bradley, as well as daughter Margaret Sheetz). You can google Medifast nepotism for more details. The
company was quite lackluster.
Engaged Capital, activist fund, gets seats on the board in early 2015. By October 2016, they add the
current CEO, Daniel Chard. Dan’s previous experience was President of Global Sales and Operations at
NuSkin. Dan then transforms the business.
Instead of selling Medifast products via chiropractors’ offices, Daniel focused on a product called Take
Shape for Life and branded it Optavia. Optavia’s business model is direct marketing (some would refer
to MLM — I will address concerns below). Optavia works on a Coach – client model. Once clients lose
weight, they can become a coach if they wish to do so. Coaches do not receive discounts, nor do they
handle inventory or cash payments.
Here is how it works in real life: I recently saw my sister and it was obvious she had lost 10 lbs., she told
me it was through Optavia. She said she did it when she saw her friend lose weight. While my sister
didn’t want to be a coach, she referred several clients to her coach.
Three VERY important takeaways here:
▪ Losing weight is the best marketing — people will notice and ask
▪ Losing weight with a coach is MUCH easier when a) you have spent money and b) when you
have a coach. You have bi-weekly FaceTime calls with your coach
▪ The product works. It’s not magic. It’s simply eating ~1,250 calories a day. However, part of the
product is the Coach-Client model
▪ Social media is free marketing for coaches. We’ve spoken to many of them and they go to
Facebook groups and simply post before and after pics of themselves and their clients.
▪ There is an (almost) endless supply of people who should and want to lose weight in America
The cost of Optavia is about $400 a month. While meaningful, you do save on some food. Because you
enter in caloric deficient mode, you lose weight quickly, and you should save some money from other
type of food.