Supplements For Your Portfolio
Declan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
You may have a friend-of-a-friend introduce you to USANA products, but this is one supplement provider to consider for your portfolio.
USANA (NYSE: USNA) spent the bulk of the post-credit crunch drop trading in a $20 and $45 range. The stock's glory period was 2002-2004, when flush credit and anything-but-tech helped consumer based stocks, particularly those with a "defensive" health sector bent, soar. The seller of nutritional and personal care products looks ready again to make a move, this time in a push above the $45 ceiling. The good news for buyers is the general light volume, suggesting it hasn't yet attracted the attention of the Big Money stock movers.
The good news for USNA started back in 2011 when it was consistently beat estimates, albeit at a modest level, where before earnings had been more erratic. The stock kicked on for Q1 results in 2012 when it reported earnings of $0.90 per share ahead of $0.69 estimates. It repeated this feat in Q2 with a $1.11 against the estimated $0.92. It should be countered the stock had reduced the number of shares outstanding which inflated the EPS figures. But collectively, these strong beats pushed the stock from $36s to the $45s. It's here where the stock sits on the cusp.
The company uses Direct Selling to market its goods through its associates, a common strategy in this sector. Growth in the Asia Pacific region grew by 11% in Q2 compared to same quarter last year and boasted 57% more in Net sales ($98 million) than North America and Mexico combined. China and the Philippines, with the addition of Thailand to its distribution network, helped contribute to these earnings. Consequently, USANA's CFO, Doug Hekking, raised the FY 2012 outlook from $610-625 million to $630-640 million. The strong contribution from the Asia Pacific region will help insulate earnings from American and European economic woes.
The vitamin and supplement industry is fragmented, which leaves the field relatively wide open. In the Direct Selling field USANA fares well against companies like Avon Products (NYSE: AVP) which boasts revenue of $11.2 billion on a P/E of 17.01 compared to USANA's 12.19. USANA has the edge on smaller competitors like struggling Mannatech, which despite its Asian exposure can't make a profit; or Cardium Therapeutics, a penny stock. Of the more established companies, GNC Holdings (NYSE: GNC) is perhaps the best well know supplement seller. Since the 2011 IPO it has been up-up-and-away for GNC Holdings, the stock doubling in price in just over a year. But whereas USANA saw its growth in Asia, GNC has driven growth on the domestic market (+13% Q-on-Q), an area USANA is set to make an announcement in August. GNC's gain suggests that despite the weak economic conditions there is still room for growth in North America.
There are a couple of other plusses it has over its nearest competitors. USANA carries no debt; GNC Holdings has a very high debt:equity at 85% while Avon Products Debt/Equity is higher again at over 200%. According to Kapitall, USANA has a healthy Levered Free Cash Flow to Enterprise Value ratio of 12% with a high short ratio (31%), when compared to a LFCV/EV ratio of 3% for GNC Holdings and 7% for Avon Products, both with lower short ratios.
Given USANA's strong positioning in Asia, the potential to grow its domestic market, and its strong valuation, the only element missing is a stock price to match.
fallond has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
