USANA Health Sciences, Inc. (NYSE:USNA)

axinite (34.36) Submitted: 12/11/2011 9:32:04 PM : Start Price: $30.89 USNA Score: +23.12

USANA Health Sciences Inc. (USNA) operates in the network-marketing industry (aka. multi-level marketing) and is headquartered in Salt Lake City, UT. With a long-term track record of solid management and consistent earnings growth, USANA last year made a sizable investment into China via the acquisition of Babycare. Although a relatively inexpensive foray into the Chinese market when compared to its larger competitors, Nuskin for instance spent well into 9-figures to access the market, the market has understandably responded uneasily to the impact of the acquisition on the Company's existing Hong Kong market, which has softened considerably over the last year. In addition, the Company experienced an exodus in its Executive Management ranks with the departure of the President, the CFO, the Senior VP of Sales, and VP of Finance in May 2011. The aggregate implications of these events injected uncertainty into the shares, and the price tumbled nearly 50% over the summer. With the positive news coming out of the Q3 Earnings Call, which included sizable share buy-backs and increased earnings and revenue guidance, the shares have gained back some of the ground they lost earlier this year. The shares have recently offered CAPS members tremendous value below $30 per share. We picked up shares over the last several months in our real dollar accounts at an average price of $25 per share. The Company has zero debt, has adopted a noticably more aggressive expansion strategy, and trades at roughly 10x's consensus analysts estimates for 2012 earnings. This is a unique industry which entails significant regulatory and operating risks. The Company's entrance into new markets presents risks which create greater-than-normal volatility in the price of the shares. Further, the Company has a higher effective tax rate than certain of its competitors, which affects after-tax cash-flow. However, our years of experience in senior financial management positions in this particular industry provides us with marked confidence in the Company's current position and future potential. Compare it to industry averages and less efficient competitors and USANA compares admirably in nearly ever respect. Although the shares represent a 33% discount to FMV now, they are a steal anywhere below $30. We look for the shares to rise 50% over the next 18 months, and to double over the next 2-3 years.