Wedbush Morgan Sees Upside to Nu Skin Enterprises (NUS)

Last week Wedbush Morgan Securities initiated coverage of Nu Skin Enterprises (ticker: NUS). Nu Skin is hoping to capitalize on direct selling opportunities in China. Here is a short extract discussing China from the Wedbush report (courtesy of Barron's):

The Chinese government has recently enacted major legislative changes, taking effect November and December 2005, which effectively remove many of the bans and restrictions on activities of direct selling companies such as Nu Skin.

Given the significant market potential of a country with over 1 billion people, combined with a relatively undeveloped retail infrastructure that provides strong opportunities for direct selling companies, Nu Skin is well positioned to see significant long term expansion in China following the opening up of this regulatory environment.

Shares of Nu Skin are trading approximately 30% off from its 52-week high, prompted by lowered revenue and earnings guidance for the second half of 2005. This is due to near-term fallout of changing compensation structures in China as well as the non-recurring disruption associated with the global distributor convention, where thousands of distributors from around the world convened and thus were not actively selling during this period.

We believe the sell-off in shares was largely unwarranted, and given the significant growth possibilities, we believe shares of Nu Skin should trade at an approximate 15% premium to the peer group average.

On a 2006 enterprise value/ earnings before interest, taxes, depreciation, and amortization multiple basis, this assumes a 10.5x multiple, generating our 12-month price target of $23.

Related:

• All China Stock Blog articles on Nu Skin Enterprises.
• All China Stock Blog articles on Direct Selling in China.