Nu Skin: Japan Drop May Be Opportunity (NUS)

Japan keeps bringing out new issues in companies in America which many might not have considered. One such name is Nu Skin Enterprises Inc. (NYSE: NUS), which develops and distributes anti-aging personal care products and nutritional supplements.  A research call update from Canaccord Genuity highlights some of the risk and also the opportunity which exists here after Japan has taken a severe bite out of its share price in the last two days.

The research notes that the complete impact of the recent Japanese earthquake will not be known for some time, and it admits that sales of discretionary goods are likely to take a hit near-term.  Canaccord Genuity’s Consumer Products Analyst is Scott Van Winkle and he noted significant exposure to Japan of about 30% of his expected 2011 revenue forecasts were expected to come from Japan.  Again, sales are expected to be hit and the outcome of ongoing challenges currently remains unclear.

Van Winkle indicated that each 1% disruption to Japanese revenue versus his forecast will impact consolidated revenue by $4.7 million, while the impact to earnings will be roughly $0.02 EPS for each 1% sales disruption.  That still assumes that incremental sales deliver a 40% contribution margin.  He also noted that Nu Skin’s operations suffered no major physical impacts from the earthquake and tsunami.

What is an interesting take here is that the overall call remains bullish as Nu Skin is in the midst of a powerful product cycle and its goal is to improve margins and ultimately drive earnings. Shares closed at $31.24 on Friday and the drop on Monday was down by almost 5.9% to $29.40.  The move today is now down another 5.4% to $27.80 and the 52-week trading range is $23.12 to $33.39.

Our own take here is one of cautious optimism based upon this call.  The chart (see below) is a drag now, and predicting the outcome of Japan seems to revolve more around nuclear plant woes than even the massive number of deaths from the earthqauke and tsunami. 

While we are generally more inclined to look at the fundamentals, we need to address the chart.  A lot of technical damage has been seen in just two short days.  Many market technicians have entirely reversed their bullish scenarios as well in the overall market.  Here is the chart from StockCharts.com:

JON C. OGG