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Nu Skin Enterprises, Inc. (NUS), Estee Lauder Companies Inc (EL), Avon Products, Inc. (AVP): Beauty Is Big Business for These Companies

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Making people look good is a big business. In fact, in 2012, the cosmetics industry was worth $68.7 billion in the U.S. and $433.4 billion overseas. Sales forecasts show annual growth of 3% to 5% over the next five years and, by 2017, are expected to reach $81.7 billion in the U.S. and $562.9 billion worldwide. The success of the cosmetics and personal care sector in emerging markets has supported profits, while Europe lingers in a recession and the U.S. continues its slow economic growth.

Innovation is creating new products that are selling well and contributing to growth. For example, cosmeceuticals, products that combine cosmetics and pharmaceuticals, is a fast growing niche that generated about $30.5 billion in 2011, and is expected to grow 8% between 2012 and 2016. There are also opportunities to capitalize on the aging of the U.S. population, of which, by 2020, two-thirds will be 55 and older. Also, by 2020, 40% of the U.S. population will consist of women that are multicultural and mixed-race, creating the need for products that cater to different skin tones and hair textures. Demand for natural, plant-based and/or organic products is also creating entirely new product lines.

Three companies looking to capitalize on expanding consumer demand for cosmetics are Nu Skin Enterprises, Inc. (NYSE:NUS)Estee Lauder Companies Inc (NYSE:EL), and Avon Products, Inc. (NYSE:AVP).

Nu Skin Enterprises has a major new product on the way

Nu Skin Enterprises, Inc. (NYSE:NUS)Nu Skin Enterprises, Inc. (NYSE:NUS) has a network of more than 850,000 independent distributors and customers that market and sell the company’s premium personal care, nutrition, and technology products. In 2012, 78% of the company’s $2.1 billion in revenue originated in China and Asia. In the first quarter of 2013, net income was $54 million, up 12.5% from $48 million in the first quarter of last year. EPS was $0.90, up 28.6% from $0.70 in the first quarter of 2012. Nu Skin Enterprises, Inc. (NYSE:NUS)’s revenue in China grew 141% in the quarter.

Nu Skin Enterprises, Inc. (NYSE:NUS) revised its 2013 guidance, and now expects between $2.83 billion and $2.86 billion in revenue and EPS between $4.85 and $5.00. When the company reports second-quarter results on Aug. 1, it will discuss the introduction of its new ageLOC TR90 weight management system, considered the biggest product introduction in the company’s history and expected to net $380 million to $400 million in sales during the second half of 2013. Wall Street estimates five-year growth for Nu Skin of 20% and 2014 EPS to grow to $5.61.

Estee Lauder expects broad-based growth

In its latest quarterly results, Estee Lauder Companies Inc (NYSE:EL) reported a 2% increase in net sales of $2.29 billion. Operating margin increased 130 basis points and net earnings increased 19% to $177.8 million. Diluted EPS also rose to $0.45. The percentage increases exclude adjustments for restructuring activities recorded in the third quarters of 2012 and 2013.

The company expects to deliver solid sales in fiscal 2013. Full year sales growth is estimated at 6% and EPS before charges should range between $2.56 and $2.61. Estee Lauder Companies Inc (NYSE:EL)’s overall business is expected to continue to do well with some negative impact due to economic weakness continuing in Southern Europe and Korea. Shares currently trade at a forward P/E of 22.68 and appear overvalued with a PEG ratio of 1.83. Estimated EPS for 2014 is $2.94, and growth over the next five years is estimated to be 13%.

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