Weight Watchers' Stock Drops After An Analyst Downgrade On Worries Over Credit Risk

Shares of Weight Watchers International slumped 7.3% in premarket trade Tuesday, after Credit Suisse downgraded the weight-loss company on fears that the heavy debt load will limit the company's flexibility. Analyst Glen Santangelo cut the rating to underperform, after being at neutral since October 2013. He slashed his stock price target to $5, which is 51% below Monday's closing price of $10.13, from $14. While Santangelo believes Weight Watchers is generally expected to be able to make the 2016 $300 million debt payment, he said investors appear to be increasingly concerned about the company's ability to generate enough cash to pay or refinance the $2.1 billion in debt that matures in 2020. Santangelo said the debt was trading at around 55 cents on the dollar, "which seems to suggest that investors believe there is serious credit risk." He also said it has become increasingly apparent that the product and marketing changes made for the January weight loss season weren't as effective as expected. The stock has tumbled 63% in the past three months, while the S&P 500 has gained 3.4%.