GNC Holdings, Inc.
) has been delivering positive earnings surprises ever since its
initial public offering in April 2011, resulting in a more than
two-fold growth in its stock price. With an average earnings
surprise of about 20.4% over the last four quarters and a long-term
growth projection of about 18.0%, this health supplement retailer
is a solid pick for growth.
With earnings estimates scaling up continuously, the company became
a Zacks #1 Rank (Strong Buy) on May 23, 2012.
Robust First Quarter
On April 25, 2012, GNC Holdings reported first quarter 2012
adjusted earnings of 60 cents per share, beating the Zacks
Consensus Estimate by 15.4% and the year-ago earnings by 81.8%.
Revenues increased 23% year over year to $624.3 million on the back
of growth in all the three segments - retail (+22.4%), franchise
(+31.1%) and manufacturing/wholesale (+17.9%). The retail segment
contributed 75% to total revenue on the back of robust same-store
sales growth, the addition of LuckyVitamin.com (which was acquired
in August 2011) and 139 net new stores.
The company notched 15.8% same store sales growth in domestic
company-owned stores, its 27th straight quarter of positive
Adjusted operating income soared 60% year over year to $112.7
million. In addition, operating margin improved approximately 400
basis points to 18.1% on the back of expense leverage.
Management also declared a cash dividend of 11 cents per share to
be payable on June 29, 2012. It continues to repurchase shares to
mitigate the dilutive impact of employee stock option exercises.
Raised Guidance and Rising Earnings Estimates
GNC Holdings raised its 2012 revenue and earnings guidance
following strong first quarter results. The company now expects to
report revenues of $2.37 billion (versus the previous guidance of
$2.28 billion), representing 14.5% growth. This guidance is based
on achieving 8% same store sales growth for the balance of the
year. The earnings guidance was boosted by 12.6% to $2.05,
representing 35% growth.
In response to the increased company guidance, earnings estimates
moved up significantly over the last 60 days. The Zacks Consensus
Estimate for 2012 has risen 8.3% to $2.09 per share, representing
year-over-year growth of more than 37%. For 2013, the Zacks
Consensus Estimate increased 8.1% to $2.40 per share, reflecting an
annualized growth of 14.9%.
GNC Holdings' valuation looks stretched compared to its peers by
most metrics. Based on 2012 earnings estimates, the company is
trading at a P/E of 17.44x, a 15% premium to the peer group average
of 15.15x. The price-to-book of 3.68x is also substantially higher
than the peer group average of 2.45x. However, we believe premium
for the company is warranted given its strong earnings potential.
Valuation, however, looks better with respect to PEG ratio. Given
the long-term growth projection of 18%, the PEG ratio comes to
0.97, a 3% discount to the benchmark of 1 for a fairly valued
Chart Looks Attractive
GNC Holdings' price performance has been reasonably strong with the
chart showing an upward trend with minor pullbacks. The price and
consensus chart shows that estimates have consistently been on the
rise with the stock price moving in concert with estimate
revisions. Rising estimates for both 2012 and 2013 thus suggest a
corresponding rise in the stock price, given past trends.
GNC Holdings, Inc, which has a market cap of $3.9 billion, is a
global specialty retailer of health and wellness products that
derives revenues primarily from products sold through company-owned
stores, online (through both GNC.com and LuckyVitamin.com),
franchises as well as to third parties. The company's product
portfolio includes vitamins, minerals and herbal supplements,
sports nutrition, diet and other wellness products.
With manufacturing facilities in South Carolina and distribution
centers in Arizona, Pennsylvania and South Carolina, the company's
products are sold through its worldwide network of more than 7,700
locations (under the GNC brand name) and strong franchise base that
is spread across US and 56 countries in the international market.
GNC HOLDINGS (GNC): Free Stock Analysis Report
To read this article on Zacks.com click here.