DA Davidson Gives Nu Skin Price Target A Chemical Peel

Nu Skin Enterprises, Inc. NUS shares are in free fall mode after reporting weak preliminary second-quarter earnings guidance. Nu Skin also cut its preliminary 2019 sales guidance.  

The Analyst

D.A. Davidson analyst Linda Bolton Weiser downgraded Nu Skin from Buy to Neutral with a price target lowered from $88 to $38.

The Thesis

Nu Skin pre-announced second quarter revenues and earnings shortfalls that were primarily due to a deterioration in selling conditions in China, where 33% of the company’s revenue came from in 2018, Bolton Weiser said in a Wednesday downgrade note. (See her track record here.)

“The meeting ban for direct sellers was not lifted in 2Q19 as NUS had anticipated, and media scrutiny of the industry has impacted consumer sentiment,” the analyst said. 

The downgrade reflects constant currency sales declines in China of 22% in the second quarter and roughly 30% in the second half of 2019 and 2020, she said. 

After experiencing a meteoric rise in China in 2013, negative media reports prompted the Chinese government to investigate Nu Skin in 2014, Bolton Weiser said. 

“NUS voluntarily stopped holding meetings and recruitment activities in China, although product sales continued.”

D.A. Davidson does not believe Nu Skin’s dividend is in danger of being reduced or cut unless the meeting ban and revenue declines continue for many years in China.

“If the meeting ban continues for a long period of time, we think NUS could develop alternative methods to lessen the magnitude of sales declines," Bolton Weiser said. 

"NUS' financial leverage is low and we believe it could increase the pace of share repurchase, without substantially increasing leverage.”

Price Action

Nu Skin shares were plunging by 15.91% to $38.27 at the time of publication Wednesday. 

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