The following article explains the weakness in the nutraceutical sector:
09/18 15:34 RESEARCH ALERT - HSBC starts TwinLab as accumulate
NEW YORK, Sept 18 (Reuters) - HSBC Securities has started coverage of
TwinLab Corp. <TWLB.O> with an "ADD" rating, the firm said Friday.
This rating, which is one step below buy, could be called accumulate, a
spokeswoman explained.
The stock was holding onto a two point gain, at 34-5/8 in the final hour of
trading Friday, after reaching an intraday high of 34-1/8,
-- HSBC describes Hauppauge, N.Y., based Twinlab as a manufacturer and
marketer of vitamins, minerals, and nutritional supplements. The company is
part of the nutraceutical industry which had estimated 1997 U.S. revenues of
roughly $10 billion and is growing at a compound annual growth rate of 15-20
percent, the firm noted.
-- It said the major players in the nutraceutical industry are TwinLab, NBTY
Inc's <NBTY.O> Nature's Bounty, Rexall Sundown Inc. <RXSD.O>, General
Nutrition Cos Inc. <GNCI.O> and Weider Nutrition International Inc
.<WNI.N>. "Combined, these companies accounted for $1.95 billion in annual
revenue in 1997, or approximately 20 percent of the domestic nutritional
supplement market.
-- TwinLab and many of its competitors experienced a steep decline in stock
prices in the past two months, prompted by GNC's announcement regarding
margin pressures, HSBC said.
-- It pointed out the decline came at a point where the industry was demanding
high multiples, adding TwinLab is now trading at 20.1 times estimated 1999
earnings of $1.62 per share, down from a high of 28x in June.
-- The firm said pricing pressure from GNC should not have a significant impact
on TwinLab, as GNC accounts for only 10 percent of the company's revenue,
and currently TwinLab has been expanding its distribution through mass market
retailers.
-- It said TwinLab experienced strong revenue growth of 57 percent during the
first half, due in part to its association with Wal-Mart Stores Inc. <WMT.N>,
and is expected to maintain a long-term growth rate of 25 percent per year. |
