At least five analysts downgraded NutriSystem's shares by midday as the stock price dropped $15.03, or 31.6 percent, to $32.54. Earlier in the day, the shares slipped to $30.60, their lowest point since November 2005.

The stock drop started after the company slashed its third-quarter guidance after the market closed Wednesday, mainly due to a 7 percent drop in new customers.

The company's new estimates for profit and sales were far below analysts' expectations, according to a poll of analyst estimates for the quarter by Thomson Financial.

BB&T Capital Markets analyst Laura A. Richardson lowered her rating on the shares to "Hold" from "Buy," saying the company's ability to attract new customers was hurt by the introduction of diet drug Alli. GlaxoSmithKline launched the over-the-counter drug in June.

"NutriSystem said at the end of the second quarter that Alli's launch had dragged down its new customer acquisitions for about three weeks with a bounce-back thereafter," Richardson said in a note to investors. "Now it appears Alli is more successful than expected, and NutriSystem's new customer acquisitions are slower than expected as potential dieters gravitate towards Alli rather than NutriSystem."

Richardson said Alli is far less expensive than NutriSystem at $49 per month compared to the diet company's $250 per month price tag, including food.

She added that the impact of Alli's introduction into the diet market could continue through the first quarter of 2008.

Canaccord Adams Research analyst Scott Van Winkle also cut his rating on the shares to "Hold" from "Buy" and said the "business model appears broken."

"With a seasonally soft quarter ahead and the Alli competition only likely to accelerate in the first quarter, we see little for investors to look forward to," Van Winkle said in an analyst note.

Kaufman Brothers, Broadpoint Capital and Lazard Capital also downgraded NutriSystem shares.