1. Nu Skin Enterprises Inc.
Covering Analyst: Cecilia Xia

2. Company Overview

3. Company Overview
Multi-level direct seller of Anti- aging personal care and nutritional supplements
Found by Blake Roney, Sandra Tilltson and Steven Lund in 1984
Headquartered in Provo, UT

4. The Evolution of Nu Skin

5. The Evolution of Nu Skin – Phase One: Start-up (1984-1991)
U.S. business
Skin care focus
Product positioning: “All of the good, none of the bad”
Effectively resolved regulatory inquiries

6. The Evolution of Nu Skin – Phase Two: International Expansion (1991-1996)
Rapid international expansion
Seamless compensation plan
Additional product category
Robust growth rates

7. The Evolution of Nu Skin – Phase Three: Coming of Age (1996-2003)
IPO – Morgan Stanley
Pharmanex acquisition
Consolidation of global operations
Additional international expansion

8. The Evolution of Nu Skin – Phase Four: Transformation (2003-2008)
Business transformation
Transfer of control from founders to public
Significant G&A restructuring
China entry

9. The Evolution of Nu Skin – Phase Five: Nu Skin 2.0 (2008-present)
Accelerating revenue growth
ageLOC
Refined product launch process
Performance-based management incentives

10. Business Segments

11. Business Segments Revenue Segment 2011 Revenue (in Million)
2012 First Three Quarters Revenue
(In Million)
Types of Products
Nu Skin
$964
(55.3%)
$816
(51.6%)
Core Systems, Targeted Treatments, Total Care, Cosmetic, and Epoch.
Pharmanex
$770
(44.2%)
$759
(48.0%)
Nutritional, Anti-aging, Solutions, Weight Management, and VitaMeal
Others
$10
(0.5%) $6
(0.3%)
Household product and Digital content storage

12. Industry Analysis

13. Industry Overviews - Cosmetic & Beauty Products Manufacturing
Growth phase
Industry players number remain constant
Revenue is expected to grow 2.2% to $54.9 B

14. Industry Overviews - Direct Selling Industry
Gloomy in the five years
Strong competition with department stores and big-box stores
Short seller David Einhorn’s bearish suggestions
Short seller Citron Research
China’s direct selling rules

15. Comparable Analysis

16. Comparable Companies
Comparables chosen for Beta, Product Offering, Geographic sales, FCF 3 year growth, Market Cap, EBITDA 3 year growth.

17. Herbalife Ltd. (NYSE: HLF)
55%
Similar product line
Similar distribution method
Similar FCF 3 year growth
Similar EBITDA 3 year growth
Similar Sales growth
Similar Net Income growth

18. Energizer Holdings Inc. (NYSE: ENR)
20%
Skin care section
Direct selling method, distributors, wholesalers
Similar FCF 3 year growth

19. The Estee Lauder Companies Inc. (NYSE:EL)
20%
Large Market Cap (22 B)
Similar EBITDA 3 year growth
Similar Net Income 3 year growth
Similar Sales 3 year growth

20. Avon Products Inc. (NYSE: AVP)5%
Similar Beta
Similar product
Similar business approach
Similar geographic focus
Different at EBITA growth, sales growth, net income growth

21. Metrics
LTM Comps(30%)

22. Metrics
Forward Comp (70%)

23. DCF Analysis

24. Revenue Model
Based on Geographic
Five areas: North Asia, Greater China, Americans, South Asia/Pacific and Europe

25. Revenue Model -North Asia
Japan: (1% growth)
Projecting 1-3% revenue growth in 2013
Increase in sales leader activity
New product launch
Reason: unsuccessful product launch before

26. Revenue Model -North Asia
South Korea: (5% growth)
Projecting 10-12% revenue growth in 2013
New product launch
Reason: Special government regulation

27. Revenue Model -Greater China
Projecting 15-18% growth rate
Mainland China (25%)
Fastest growing direct selling market
3rd largest direct selling market
Taiwan (5%) and Hong Kong (5%)
Mature market with stable growth rate

28. Revenue Model -Americas( 5%)
Projecting 12-15% growth rate in 2013
Latin America projected 60% revenue growth rate
New product launch
Reason: questioned by short sellers, investors confidences

29. Revenue Model -South Asia/Pacific (25%)
Expansion into Vietnam in 2012
Projecting 5-10% revenue in 2013
Reason: Great experience with new product launching; New market entry

30. Revenue Model -EMEA (5%)
Projecting 12-15% revenue
New project launch in 2012
Reason: management team projected way too high last year

32. Working Capital Model & DCF Model
Percent of revenue
Growth margin remain at 83.5%
Constant COGS
SG&A increase due to upper level sales leaders increase
Capital expenditures increase due to build facilities in Provo and China
5% intermediate growth rate was used to smooth cash flow growth heading into perpetuity

33. Final Valuation

34. Portfolio History Currently holding 50 shares in Tall Firs portfolio
Cost basis of $2883.7
Market value of $2211.0
Unrealized loss of 23.33%
Currently holding 52 shares in Svigals’ portfolio
Cost basis of $2968.5
Market value of $2299.4
Unrealized loss of 22.54%

35. Recommendation
Due to Nu Skin’s strong potential of growing, I recommend a hold in all portfolios

36. Questions

37. Appendix A – Issues about China Market

38. China Management team average tenure about 20 years
Understand local regulatory framework
Works cooperatively with local regulators
Has a track record of regulatory compliance and successful operations

39. China Solid Infrastructure in China: 4 Manufacturing Plants 2 R&D Labs
40 Stores
15 Provincial & Municipality Licenses

40. Significant Market Potential For Nu Skin

41. Five Year Business Plan in China
Increase number of direct selling licenses
Expand number of direct sellers
Triple number of retail stores
Extend distribution channel by adding independent markets

42. Appendix B – Sustaining Growth Method
ageLOC: a compelling product platform
Strong product pipeline
Product launch process deliver strong results
Growth in every geographic region
Investing in Channel Innovation
Strong balance sheet and cash flow
Experienced management and sales leaders

43. Appendix C - EPS

45. Appendix D – Stock Repurchase Activity

46. Appendix E – Increasing dividend history

47. Appendix E – 2007-2013 Cash from Operation

48. Appendix F- Sales Leaders