Weight Watchers Stock Options Bear Poised to Profit

J.P. Morgan set a bruising price target on WTW stock

Feb 27, 2019 at 9:30 AM
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The shares of Weight Watchers International, Inc. (NASDAQ:WTW) are bracing for a big drop out of the gate, after the weight loss specialist's disappointing earnings report was met with a round of bearish brokerage notes. And even news major stakeholder Oprah Winfrey will take a key role in the company's upcoming marketing campaign can't save the stock, with WTW shares down 35% ahead of the bell -- set to trade below the $20 per-share mark for the first time since April 2017.

For the fourth quarter, Weight Watchers reported earnings of 63 cents per share on $330.4 million in revenue -- much less than analysts were expecting. Additionally, the firm forecast lower-than-anticipated 2019 revenue, and said a soft start to the critical winter season will negatively impact this year's member recruitment numbers.

In reaction, KeyBanc, Oppenheimer, Craig-Hallum, and D.A. Davidson all downgraded WTW stock to the equivalent of a "hold." Plus, following last week's downgrade, J.P. Morgan Securities added Weight Watchers to its U.S. focus list as a top short idea, and slashed its price target to $14 from $25 -- a nearly 53% discount to last night's close at $29.57.

While WTW stock is all but certain to land on the short-sale restricted list today, short sellers will likely be cheering today's sell-off. Short interest spiked 142% in the most recent reporting period to 10.36 million shares, representing 17% of the equity's available float.

One WTW options trader stands to profit big on today's expected post-earnings slump, too. Specifically, a block of 3,845 March 30 puts was bought to open back on Feb. 8 for $4.10 apiece. Should today's pre-market price action pan out, the put option's price will most certainly spike.

UPDATE, 10:15 AM: Weight Watchers stock was most recently seen trading down 35.3% at $19.14, earlier hitting a 22-month low of $18.80. Meanwhile, the March 30 puts were last asked at $11.

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