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Nu Skin Enterprises
by Zacks Equity ResearchSeptember 25, 2012 | Comments : 0 Recommended this article: (0)
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Earnings estimates for this provider of anti-aging personal care products have moved upward since announcing impressive second-quarter 2012 results, which included a positive earnings surprise of 13.3%. Catalysts driving the growth include product innovation, emerging markets, the strong balance sheet and cash flow generation capability.
Profit Surges, Guidance Up
On July 26, Nu Skin Enterprises reported second-quarter 2012 earnings of 94 cents per share, topping the Zacks Consensus Estimate of 83 cents and jumping nearly 45% from last years 65 cents. Notably, the company outperformed the Zacks Consensus Estimates in 10 of the past 11 quarters and missed just once.
Total sales of $593.2 million comfortably surpassed the Zacks Consensus Estimate of $510 million and surged 39.8% from $424.4 million a year ago. The launch of ageLOC anti-aging products facilitated top-line growth. Region wise, sales surged across Greater China (up 152%), South Asia/Pacific (up 66%), the Americas (up 20%) and Europe (up 7%). However, these were partially mitigated by a 3% sales decline in North Asia.
Gross profit jumped 40.9% to $497.7 million, while gross margin expanded 70 basis points to 83.9%. Operating income rose 48.2% to $97.9 million, whereas operating margin improved 90 basis points to 16.5%.
Buoyed by better-than-expected results, management raised its 2012 earnings guidance to between $3.16 and $3.24 per share on projected sales of $2.00 billion to $2.03 billion. Earlier, the company had forecasted earnings between $2.92 and $3.00 per share, and sales of $1.845 billion to $1.875 billion.
Earnings Estimates Climbing
This Zacks #1 Rank (Strong Buy) stock has been witnessing upward estimate revisions over the past 60 days. The Zacks Consensus Estimates for 2012 and 2013 increased 5.9% and 5.2% to $3.24 and $3.64, respectively. The 2012 estimate implies year-over-year growth of 12.6%, whereas the 2013 estimate reflects an increase of 12.4% over the prior-year.
Dividend Portraying Strength
Nu Skin Enterprises has been consistently raising its dividend since initiating the payment in 2001. In February 2012, the company hiked its quarterly dividend by 25% to 20 cents per share, representing an annual yield of 2.1%. The companys commitment toward enhancing shareholder return reflects its free cash flow generating capability, sound liquidity position and well defined future prospects.
Valuation Looks Reasonable
Nu Skin Enterprises currently trades at a forward P/E of 11.98x, reflecting a 22.1% discount to the peer group average of 15.37x. However, its price-to-book ratio of 4.32 is at a substantial premium to the peer group average of 1.42. Given the long-term earnings growth projection of 12.6%, the PEG ratio comes in at 1.0, in line with the benchmark for a fairly priced stock but above the industry average of 0.6. The return on equity (ROE) for the stock looks very impressive. It has a trailing 12-month ROE of 34.2% compared with 11.9% for its peer group.
A Look at the Chart
After witnessing volatility in the past, the 12-month EPS chart below indicates that the stock price has now started to correlate with the increasing trend in estimates. Currently, the stock price is in the range of $35.00 to $40.00, and the consensus estimates for 2012 and 2013 are steadily moving upward.
Given the earnings growth potential, the strong earnings surprise history and the ability to sustain dividend increases, the stock is a solid pick for investors seeking both growth and income. Nu Skin Enterprises sound fundamentals are mirrored through strong second quarter results. Management believes that it will sustain the same rhythm in the back half of 2012, counting upon its compelling products lineup.
Founded in 1984 and headquartered in Provo, Utah, Nu Skin Enterprises is the provider of anti-aging personal care products and nutritional supplements under the Nu Skin and Pharmanex brands, and has operations in approximately 52 markets globally. The company distributes its products in Greater China, South Asia/Pacific, the Americas, Europe and North Asia, principally through approximately 900,000 active distributors. Nu Skin Enterprises, which competes with Avon Products Inc. (AVP), currently has a market cap of $2.33 billion.
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