Nu Skin: Our Favorite Boomer Stock

Feb.10.10 | About: Nu Skin (NUS)

Our favorite Baby Boomer stock, Nu Skins Enterprises (NYSE:NUS), announced record fourth-quarter and annual results on Feb. 4. Revenue for the fourth quarter was $378.1 million, a 19 percent improvement over the prior-year period. Although revenue was positively impacted by a seven percent foreign currency contribution because of the weak dollar, earnings per share for the fourth quarter were $0.47, a 104 percent improvement, or 31 percent when excluding non-operating items impacting year-over-year comparability.

The company generated record annual revenue of $1.33 billion in 2009, a 7 percent improvement over the prior year. Currency fluctuations did not materially impact year-over-year revenue comparisons. EPS for the year were $1.40, a 37 percent increase, or 22 percent when excluding non-operating items impacting year-over-year comparability.

Truman Hunt, president and chief executive officer stated,

We finished our 25th Anniversary year on a high note with record revenue, a record launch of our new skin care system, and a record number of executive distributors. Each region is contributing to our growth, with particularly strong double-digit gains in South Korea, the Americas, China, Southeast Asia and Europe.

We also continue to drive significant growth in operating income as demonstrated by a fourth-quarter improvement of 35 percent. Our consistent efforts to operate more efficiently have helped us build a solid foundation for increasing profitability, and we will continue this focus going forward.

It is worth taking time to study Nu Skin's fourth quarter revenue split: North Asia $167.2 million (up 11%), America’s $78.9 million (up 34%), China $55.7 (up 5%), Europe $41.0 million (up 44%) and South Asia and the Pacific $35.3 (up 36%). The only worry we have with Nu Skin is a future potential revenue glitch in its China operations, which represents about 15 percent of revenue. This concern is because of our expectation that China will suffer a meltdown during the next five years similar to that of Japan and East and Southeast Asia before it.

The company raised guidance for 2010. It sees revenues between of $1.38 - $1.41 billion and EPS of $1.65 - $1.75. This matches it with current consensus, which see revenues of $1.41 billion and an EPS of 1.70. However, its first quarter 2010 guidance was higher than consensus. Revenues of $337 - $345 million and EPS of $0.39 - $0.42 versus consensus revenues of $324.94 million and EPS of $0.35.

"The introduction of the ageLOC anti-aging skin care system has been very successful," said Hunt.

The system was introduced as a limited-time offering with a further rollout occurring in the majority of our markets during the first quarter of 2010. In the past, our product introductions were staged geographically over a one- to three-year period. The ageLOC introduction is happening on a much more condensed timeline, enabling us to channel global distributor enthusiasm more effectively. We expect ageLOC to generate more sales in its first 12 months than any other product in our history.

In January 2010, we also introduced a new and improved version of our best-selling Galvanic Spa to our ageLOC product suite. This new ageLOC Galvanic Spa includes technical advancements that make it more user-friendly, while significantly improving delivery of ageLOC ingredients to the skin.

Overall, we are optimistic about continuing our momentum into 2010. Our efforts are being rewarded with increased sales, improved productivity and strong product opportunities that will propel our business forward. As we build on our unique ageLOC platform, we will begin integrating ageLOC into our nutritional line in late 2010. We believe this will further differentiate Nu Skin in the anti-aging category by leveraging our unique ability to address the sources of aging both internally and externally.

Ritch Wood, chief financial officer, said:

Given the strong revenue results of the fourth quarter and an improved gross margin from the launch of ageLOC products, we are increasing our 2010 projected revenue and earnings per share to $1.38 to $1.41 billion and $1.65 to $1.75 respectively. Although we expect currency to be mostly neutral for the year, we anticipate a benefit of approximately 5 to 6 percent in the first quarter. We project local-currency revenue growth of 9 to 10 percent, which results in first-quarter revenue guidance of $337 to $345 million. We expect first-quarter earnings per share in the $0.39 to $0.42 range, an improvement of approximately 100 percent, or 40 percent excluding restructuring charges in the prior year.

We continue to believe in the "Super Stock" status of Nu Skin Enterprises over the coming decade. The company sells on a 12 month trailing P/S of 1.3 and an improving return on equity of 22.5 percent. The average five-year revenue growth is 4.8 percent. On an earnings basis the shares sell on a December 2011 P/E of 13.3 (EPS $1.97). However, on a on a short-term risk basis we prefer other potential "Super Stocks" with Price to Sales below 1.0.

The relative chart below of Nu Skin Enterprises to the S&P Global 100 Index shows the building share price momentum since mid 2008. We believe the stock’s strong story will see the shares breaking higher into new relative high ground in the coming 12 months.
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Source: Google Finance
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Disclosure: No positions, but Nu Skin is featured in our model Beacon Master Portfolio.