Management raised its guidance for the full year as it expects the growth overseas to continue. Analysts have been raising their estimates too, sending the stock to a Zacks #2 Rank (Buy).
Nu Skin also pays a dividend that yields a solid 1.7%. The company has been steadily increasing its payout since it began paying a dividend 10 years ago.
With strong growth potential and solid income, Nu Skin looks very reasonably priced at 15.6x forward earnings.
Nu Skin Enterprises is a direct selling business that develops and distributes anti-aging personal care products and nutritional supplements, including its popular ageLoc line. The company operates in 52 markets around the globe and has more than 825,000 independent sales representatives.
It is headquartered in Provo, Utah and has a market cap of $2.5 billion.
Second Quarter Results
Nu Skin reported strong second quarter results on August 2. Earnings per share came in at 65 cents, 10% above the Zacks Consensus Estimate. It was a stellar 30% increase over the same quarter in 2010.
Revenue rose 9% year-over-year to $424.4 million, well ahead of the Zacks Consensus Estimate of $407.0 million. This growth was driven largely by the emerging markets. Sales were up 12% in North Asia and 29% in South Asia/Pacific (both exclude China). Sales in Greater China actually decreased 2% as the company faced difficult comps there year-over-year.
Sales in Europe were surprisingly strong, climbing 22% year-over-year. Sales were off 6% in the U.S., but America represents less than 12% of overall revenue.
The gross margin expanded 70 basis points to 83.2% due to supply chain efficiencies and foreign currency benefits. Meanwhile, the operating margin expanded 40 basis points to a record 15.6%.
Management raised its full year guidance off the strong quarter as it expects growth in the emerging markets to continue throughout the second half of 2011, particularly in China and South Asia. The company now expects to earn between $2.38 and $2.46 per share in 2011, up from previous guidance of $2.28 to $2.38.
The 2011 Zacks Consensus Estimate is currently within guidance at $2.40. This represents 14% growth over 2010 EPS. The 2012 consensus estimate is $2.73, corresponding with 14% growth over 2011 EPS.
Expect analysts' estimates to move higher in the coming days. Consensus estimates have been rising steadily over the last several months as the company has delivered 7 consecutive positive earnings surprises:
It is a Zacks #2 Rank (Buy) stock.
Nu Skin pays a dividend that yields a solid 1.7%. Since it began paying a dividend in 2001, the company has raised it every 4 quarters at a compound annual rate of 10.4%.
Its payout ratio is a very manageable 25%, so I'd expect these systematic dividend hikes to continue.
Valuation looks reasonable with shares trading at 15.6x 12-month forward earnings, in-line with its 10-year median.
The Bottom Line
With excellent emerging market growth potential, shareholder-friendly management and reasonable valuation, Nu Skin offers investors a lot to like.
Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research.
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