USANA Health Sciences: Dipping Revenues, But It Could Improve

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USANA Health Sciences, Inc. (NYSE:USNA) knowledgeable important benefits during nan pandemic arsenic a awesome chunk of their income comes from dietary supplements, which saw a surge successful demand. The institution reached its highest gross successful 2021 and 2022. The caller acquisitions of Rise Bar and Oola person added to USNA's portfolio. However, nan post-pandemic dip successful gross and declining rate travel is simply a concern. Additionally, nan institution is facing rising costs of income owed to inflation, which is affecting its profitability. Based connected these factors, I would springiness USNA an first standing of hold.

About nan Company

USANA is simply a institution that produces high-quality nutritional supplements, patient foods, and individual attraction products. These products autumn nether nan categories of optimizers, nutritional supplements, food, skincare, and others. The institution has much than 500,000 customers and operates successful 24 countries, pinch nan mostly of its income coming from Asia, peculiarly China, arsenic good arsenic immoderate income from America and Europe. That's why it places a important accent connected its operations successful China.

Industry Outlook

According to Statista, nan beauty and individual attraction manufacture is expected to experience a compound yearly maturation complaint (CAGR) of 4% until 2027. This is justified fixed nan increasing world organization and rising disposable income of Chinese consumers. All of these factors mean a bigger marketplace pinch amended request for this industry.

Fortune Business Insights predicts growth of astir 9% for nan dietary supplements manufacture from this twelvemonth done 2028. The important and far-reaching effect of nan COVID-19 pandemic has led to an summation successful request for dietary supplements crossed each regions, arsenic nan fearfulness of nan microorganism has made group much health-conscious and focused connected their intake of nutrients.

While galore companies knowledgeable a backlash during nan pandemic, companies for illustration USNA person seen a greater request successful pandemic years arsenic 80% of its income comes from nutritional supplements.

Recent Performance

USNA knowledgeable unprecedented maturation during nan pandemic, pinch revenues reaching caller heights successful 2020 and 2021, totaling almost $1150M and $1200M, respectively. This was mostly attributed to nan heightened request for nutritional supplements and patient foods arsenic group sought to support their wellness successful nan look of nan COVID-19 virus.

However, arsenic nan business improved and nan fearfulness of nan microorganism subsided, nan institution saw a diminution successful sales, pinch a 17% driblet successful 2021. Each quarter, nan institution recorded decreasing income and little net for its shareholders. With nan institution posting antagonistic results, nan marketplace had debased expectations for nan last quarter. But nan institution defied these expectations and delivered powerhouse results. A surge successful request during nan last 2 weeks of nan 4th led to an unthinkable 90% upside astonishment successful net per stock (EPS), comfortably exceeding marketplace expectations.

Strengths

In opposition to nan income statement, which displays a alteration successful revenues and a shrinkage of nett income by much than 40% successful conscionable 1 year, USNA's equilibrium expanse still demonstrates a beardown financial position. The institution is debt-free, which is acold from emblematic successful astatine a clip erstwhile nan small-cap banal marketplace is heavy populated pinch alleged "zombie companies" - i.e., those that tin only past by continuing to incur debt. That USNA's afloat income tin beryllium utilized for nan use of shareholders without nan request for semipermanent indebtedness payments provides shareholders pinch important return potential.

Furthermore, nan company's short-term aliases day-to-day financial well-being is robust. With a existent ratio of 2.7x and a rate ratio of 2.0x, USNA appears to beryllium highly liquid successful nan short term. This eliminates nan interest of investors astir imaginable short-term obligations that could originate astatine immoderate time.

USNA has ne'er issued dividends, but alternatively implements what I deliberation is simply a superior attack to reward its investors: a stock repurchase policy. Over nan past 12 months, nan institution has invested complete $62 cardinal successful its stock repurchase program. This reflects management's assurance successful nan company, and suggests that they still position nan shares arsenic undervalued. The stock repurchase strategy not only boosts EPS, but besides saves a important magnitude of taxes that nan institution would different person to salary if it were to manus retired dividends.

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Weaknesses

One of nan important issues I observe regarding USNA is its reliance connected doing business successful China, which is presently causing difficulties for nan company's growth. The COVID-19 situation successful China and its stringent lockdown measures are affecting USNA, arsenic a ample information of its income comes from this region. Any alteration successful nan policies by nan Chinese authorities straight affects USNA's sales. This was evident successful 2021 erstwhile nan lockdowns successful China resulted successful a 16% diminution successful USNA's revenue.

Another point that concerns maine is escalating ostentation and increasing liking rates. Unlike work companies, USNA is heavy reliant connected earthy materials for its merchandise manufacturing. This increasing costs of income and operating expenses is simply a root of interest for USNA. The operating income arsenic a percent of gross has been decreasing complete nan past 2 years and has dropped to arsenic debased arsenic 10% for nan company.

Another facet contributing to its weakness is nan decreasing un-levered free rate flows (UFCF). UFCF represents nan magnitude of rate a institution has earlier considering its financial obligations and shows nan magnitude of rate disposable for nan company's description . The simplification successful USNA's UFCF indicates a consequence to its early maturation arsenic nan institution has little rate each year. This alteration not only reduces nan wide endeavor value, but besides makes it challenging for guidance to unafraid superior and prosecute different opportunities successful nan future.

When evaluating a company's performance, it's important to not only see its soul factors and growth, but besides really it compares to its manufacture and competitors. By comparing a institution to akin firms, you tin get a amended knowing of its expertise to outperform its title and supply amended returns for its investors. The forward-looking gross maturation for USNA's peers Medifast (MED), Herbalife Nutrition (HLF), and The Beauty Health Company (SKIN) is estimated astatine 16%, -10%, and 57%, respectively. However, USNA is acold down astatine -16%. Additionally, erstwhile compared to nan manufacture arsenic a whole, nan forward-looking EBITDA maturation of nan assemblage median is 5%, while USNA is struggling astatine -10%. This suggests that USNA mightiness person trouble surpassing its peers and could struggle to support gait pinch them.

Looking Forward

There are 2 factors that could perchance summation USNA's revenues successful nan adjacent future:

1. The caller acquisition of Rise Bar and Oola: Rise Bar produces macromolecule bars and Oola provides a individual improvement framework. These acquisitions took spot successful November 2022, facilitating imaginable gross maturation that will beryllium reflected during nan first 4th of 2023.
2. Chinese New Year and easing of lockdowns: As antecedently noted, USNA's revenues are heavy limited connected China. The first 4th of 2023 could beryllium favorable for nan institution for a mates of reasons. The Chinese New Year, celebrated connected Jan. 22, 2023, typically leads to an summation successful spending. Also, nan easing of lockdowns successful China makes it easier for nan institution to supply, market, and waste its products.

Valuation

By utilizing nan intrinsic valuation methods of EV/EBITDA and P/E multiples, I've established an mean worth of $65.5. The existent banal value is $61.4, which suggests that nan banal is adjacent to its adjacent value. I utilized nan pursuing assumptions successful these valuations:

• P/E Multiple - A assemblage median P/E aggregate of 20.98x was considered compared to USNA's 17.03x.
• EV/EBITDA - A assemblage median EV/EBITDA aggregate of 13.74 was utilized successful comparison to USNA's 7.31.

Intrinsic Valuation (Created by writer utilizing information from Seeking Alpha)

Conclusion

Several factors bespeak that nan institution has a batch of potential. Its beardown short-term liquidity, nan absence of semipermanent debt, and an progressive stock repurchase programme show nan company's coagulated financial position. The truth that it has precocious acquired 2 companies and has a highest play up of it, I would see USNA connected my watchlist.

However, nan company's shrinking revenues and nett income interest me. The truth that nan UFCF is declining and that gross highly depends connected nan policies of China raises questions astir its growth. Since nan existent banal value is astir adjacent to my estimate of its adjacent value, I complaint USNA arsenic a hold.

I person joined Sungarden Investment Publishing arsenic an Investment Research Intern successful nan Spring of 2023. I completed my undergraduate successful 2016 and was an entrepreneur for complete 4 years . Afterwards, I started  Master’s successful Finance grade pinch Stevens Institute of Technology successful Fall 2021 and person a cumulative GPA of 3.97. I now aspires to go a starring Financial Analyst. Closely associated pinch writer Modern Income Investor.