Nu Skin Enterprises, Inc. (NUS) Pops On China Investment

Nu Skin Enterprises, Inc. (NUS) Pops On China Investment

Nu Skin has received at least one price target increase following the announcement of the $210 million strategic investment it received from a Chinese consortium. However, analyst views on the multi-level marketing firm run across the spectrum. Shares of Nu Skin surged nearly 12% to as high as $45.38 on Thursday.

Nu Skin price target increased by Pivotal

Pivotal Research analyst Tim Ramey, who is particularly known for his coverage of Herbalife, increased his estimates and price target for Nu Skin following Wednesday night’s announcement. He continues to rate the company as a Buy, and his price target moved from $55 to $60 per share.

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The consortium that invested in Nu Skin Enterprises, Inc. (NYSE:NUS)  is led by Ping An, which is a division of Ping An Insurance Group. The multi-level marketing company will sell $210 million in four-year 4.75% convertible notes to the consortium for $46.50 per share, representing a 14% increase. It will then use the cash to fund a 4.5 million share buyback, probably as soon as possible, said Ramey.

He notes that the deal is “slightly cash positive” because the note coupon is tax deductible compared to the dividend on the retired shares. Ping An will also be able to nominate a board member.

Ramey explains that the deal is a big one for Nu Skin because China is a massive but troublesome market. He adds that since Herbalife started experiencing problems in China over two years ago, Nu Skin has known that it would be “a powerful positive to find a Chinese partner.” Not only would it help with regulators, but it also helps Chinese consumers see it in a more positive light.

Nu Skin still rated a Sell

At the extreme opposite end of the spectrum we have Stifel analyst Mark Astrachan, who has a Sell rating and $34 per share price target on Nu Skin. He agrees that the deal will help the company “navigate the potential political headwinds” in China, which is its most important market for growth. Mainland China makes up about 25% of the company’s total sales.

He adds that what’s interesting is that Nu Skin doesn’t appear to need any cash as it had virtually no debt in the first quarter. It can also access its revolver at a rate that’s lower than the rate on the convertible notes. However, he believes the company feels it’s worth it to pay a higher rate for access to the Chinese consortium.

The analyst also notes that Nu Skin Enterprises, Inc. (NYSE:NUS)’s second quarter sales are a little better than expected and probably driven by the limited-time offer on the ageLOC Me skin care system. However, he also points out that management didn’t update their second quarter earnings or full-year guidance, and he believes that this demonstrates that visibility into current sales trends remains limited. Further, he questions whether the sales beat is sustainable since it was driven by a limited-time offer.

Finally, he believes Nu Skin shares are expensive because they’re at a premium to those of peers in direct sales, which he thinks is unwarranted because of the company’s declining share in China and possibly weakening demand.

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