Fresh off a successful campaign to shake things up on the board of Abercrombie and Fitch, the activist hedge fund Engaged Capital is looking to give diet and nutrition planning company Medifast a corporate makeover, before it almost certainly becomes the target of a private equity acquisition.
Engaged announced Wednesday it has bought up a 5.7% stake in Medifast, which it believes has very healthy financials — no debt, cash on the balance sheet, and a 20% return on capital. The trouble with Medifast, however, is that it trades at a 40% discount to its peers like Nutrisystem and Weight Watchers, and doesn’t have enough name brand recognition.
This, according to Engaged, makes Medifast a prime target for a private equity acquisition, a scenario that is sure to play out should the public markets continue to undervalue the Owings Mills, Md.-based company by a margin that Engaged estimates is about 40% to 50% of what Medifast is actually worth. By Wednesday afternoon just after Engaged’s announcement, shares of Medifast had dropped about $1.30 to $29.25 per share.
Medifast did not return a request for comment.