Nu Skin: On Second Thought…

Nu Skin’s shares plunged yesterday after the company released strong fourth-quarter earnings but said 2014 would be impacted by China’s investigation into its selling practices. It also postponed the release of its 10-K

Bloomberg

Today, however, investors are reconsidering, as Nu Skin’s shares head higher thanks to supportive analysts. JPMorgan’s John Faucher and team, for instance, are “encouraged by the language in the press release.” They explain why:

The company did not really provide any additional color on recent events on the conference call. However, in the press release they indicated that they “are diligently preparing to resume normal business activities [in China] as soon as possible, subject to resolution of the China regulatory review". Management is already improving their sales leader training processes and we expect more changes in the model in China, as the situation evolves. Once a resolution is reached, we do
expect the company's China business to be largely intact.

Deutsche Bank’s Bill Schmitz and team call Nu Skin’s valuation compelling:

While China overhang persists, company is working closely with government to find a speedy resolution, which likely includes changes to training and recruiting policies. In the interim, growth will clearly slow as company stops recruiting in this core market but we believe this is already more than priced into the stock at these levels and continue to see a product and channel driven growth stock priced like a broken value story.

Valuation supports Buy rating and $110 target…DCF yields $110 target price, assuming 4.6% sales growth and 0.3 pts of annual margin expansion through 2021 (8% WACC based on CAPM). Downside risks include continued headline risk, developing markets slowdown, geopolitical challenges, legal, regulatory and corruption issues, stronger dollar and disappointing new product results.

Shares of Nu Skin have gained 5.4% to $78.63, while Herblife (HLF) has risen 1.5% to $66 and Usana Health Sciences (USNA) has advanced 5% to $75.53.