Fitness financials: Analysts estimate 'healthy lifestyle' stocks will fall in '09, plus Nautilus, GSI Commerce

Analysts estimate ‘healthy lifestyle’ stocks will fall in ’09

Although health and exercise clubs usually benefit from New Year’s resolutions, analysts predict that economic stress will hamper the growth of companies like Life Time Fitness (NYSE: LTM) and Town Sports (Nasdaq: CLUB).

Given the weak economic outlook for 2009, Karen Howland, an analyst who covers healthy lifestyle stocks for Barclays Capital, estimates that earnings for the healthy lifestyle stocks she covers could fall 7.9 percent on average in 2009 — much more than the 1.9 percent drop projected by Wall Street, and compared with no change in 2008 from the prior year. These companies tend to be highly sensitive to consumer confidence and spending, she wrote in a research note.

Even though Howland trimmed her fiscal 2009 earnings estimate for Life Time to $2.09 per share, from $2.20, she predicts it will still increase profits by 4.6 percent over fiscal year 2008 “as centers opened in the past three years become more mature (and subsequently more profitable).”

There’s also the possibility that Leonard Green & Partners, which bought a 9.2-percent stake in Life Time between Oct. 3 and Nov. 24, could take the company private. This “is likely to give owners of the stock some reassurance and a reason to hang on, while potentially causing short sellers (31 percent of the float) to cover and take profits,” Credit Suisse analyst Paul Lejuez said in a Nov. 24 research note.

PiperJaffray analyst Anthony Gikas downgraded Town Sports’ stock to “Neutral” from “Buy” and trimmed his price target by $1 to $4, implying shares have room to rise 25 percent from Jan. 2’s closing price of $3.21.

Gikas wrote in a client note that weakness in consumer confidence and employment will hurt the company’s membership. Consumers have been cutting back on their spending amid widespread layoffs and tighter credit.

“Based on deteriorating macroeconomic factors in key territories, including New York, we expect revenue and earnings declines are in front of Town Sports,” Gikas wrote.

Gikas expects flat revenue in the 2009 calendar year and earnings per share to decline. Gikas wrote that does not expect strong improvement in the near-term, but thinks management is doing its best to boost membership.

Nautilus’ shares higher as shareholders continue support of Sherborne Investors

In a New Year’s Marketwatch bulletin, Nautilus (NYSE: NLS) was named as a company whose shares were higher ($1.97). The slight increase was noted as a likely reaction to shareholder votes confirming all four Sherborne Investors LP nominees to Nautilus’ board. The final voting results also showed that all of Sherborne Investors’ other proposals were passed.

This is better news to start 2009 than a mid-October report that noted Nautilus shares had fallen 9.6 percent — making it one of the NYSE’s biggest losers — on the heels of news that it was eliminating 140 positions, or 9 percent of its workforce, to try to cut expenses by $10 million annually. Shares are down more than two-thirds since a late spring high of $6.85 and a low in mid-November of $1.66.

GSI Commerce shares drop on downgrade

GSI Commerce’s (Nasdaq: GSIC) shares were dropped more than 11 percent in afternoon trading Jan. 5 after Stifel Nicolaus lowered its rating on the company’s stock. Shares in GSI had fallen $1.21 to $9.57 on volume of 480,038 shares. It closed at $9.64.

The price decline followed a report by Stifel Nicolaus in which analysts for the Stifel Financial Corp. subsidiary downgraded their rating of GSI to “Hold” from “Buy and lowered their fair-value estimate of its stock price to $11 from $12.

The research report said they expect domestic e-commerce sales for the fourth quarter will come in 4 percent lower than in 2007, which they said was lower than the figure the company implied in its fourth-quarter guidance.

They also said GSI and similar companies are being forced to increase their service levels to compete with the increased selection and shipping guarantees being offered by Amazon.com. GSI runs all or part of the e-commerce operations of its customers, which include retailers and brand-name manufacturers.

–Compiled by Wendy Geister

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