Clinton Group Looks To Get Fat on NutriSystem

 

Usually activist investor holds over 5% of common stock. Sends love letter to management.

You may recall our discussions of Clinton Group from such activist campaigns as Stillwater Mining, Quality Systems and its SPAC, ROI Acquisition Corp. II. It also owns over 5% of NutriSystem, a “leading provider of a weight management system based on a low-calorie, portion-controlled, prepared meal program.”  I’m hungry just thinking about it. Clinton Group encouraged NutriSystem to can their CEO and augment their board a couple of years ago, and NutriSystem complied. Clinton Group has recently increased its NutriSystem holdings, but is dismayed by the lack of credit given to the company’s cash flow by the market.

“We can only assume that the capital markets do not fully appreciate the operating leverage and cash flow generation characteristics of the business or its seasonality.”

Unlike most activist campaigns, Clinton Group seems pleased by the general trajectory of the company’s operations:

“If we are right about the cash flow opportunity, the capital markets, two years from now, will likely afford the Company an 8-10x forward EBITDA multiple, consistent with the Company’s historical average multiple and those of other growing businesses with strong franchises. With the free cash generated over the next two years (which Citigroup Research estimates at $25 million after dividend payments), plus the existing cash on the balance sheet ($35 million), this implies a stock price in the mid $30s by Fall 2015. Such a stock price would be approximately equal to the average price from 2006 to 2010 and significantly below the stock’s pre-recession peak of $75. For today’s owners, a mid $30s price by the Fall of 2015 implies an annualized return of over 50%.”

A mid $30s stock price would be more than double the current NTRI stock price of $14.37, up over 1.4% for the day, at this writing. Other than the market’s general attitude, Clinton Group seems pleased:

“We appreciate all that you are doing for the Company and the stockholders, and know the market soon will too.”

Warm fuzzies all around.  We will take a closer look at NTRI, add it to our Opps Tracker.  We also to expect to buy a few shares, but we cannot be sure of the timing at this point.

NutriSystem.  Good enough for Janet Jackson.

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