Herbalife (HLF - Snapshot Report) the subject of
a lot of controversy but it is also a Zacks Rank #2 (Buy).
Herbalife is a network marketing company that sells weight
management, nutritional supplements, energy, sports and fitness,
and personal care products worldwide. Herbalife offers its
products through retail stores, sales representatives, sales
officers, and independent service providers. The company was
founded in 1980 and is based in Grand Cayman, the Cayman Islands.
Herbalife Beats Estimates in Six Straight Quarters
Herbalife topped the Zacks Consensus
Estimate in each of the last six quarters with the smallest beat
coming in the most recent quarter. The largest percentage beat of
the last six was the December 2011 quarter which came in 17.8%
ahead of the Zacks Consensus Estimate.
The September 2012 quarter was the most recent report and came
just weeks before Pershing Square's Bill Ackman called the company
a pyramid scheme. The company reported earnings per share of
$1.04 when the Zacks Consensus Estimate called for $1.01. That
means a beat of $0.03 or 3%. The stock traded flat in the
session following the release. Revenue was $1.017 billion, compared to
the Zacks Consensus Estimate of $999 million.
Herbalife the target of short seller Bill Ackman
In a mid-December conference, Bill Ackman disclosed that he is
short approximately 20 million shares of Herbalife. The total
short interest as of the end of December was approximately 37
million shares. Ackman asserts that the company is nothing short
of a pyramid scheme and will end up at $0.00. To further
substantiate this claim, Ackman needs the FTC to investigate the
company and despite recent rumors and Freedom of Information Acts,
there has been no such investigation.
In early January, Dan Loeb's hedge fund Third Point filed a 13G
which stated it acquired 8.9 million shares and the stock
officially became a battleground stock. It wasn't long after
that point that Carl Icahn became involved as well and the
billionaires went at it on live television.
Toll Brothers Sees Estimates Moving Higher
Estimates for Herbalife have been rising of late. The Zacks
Consensus Estimate for 2012 for HLF stood at $3.60 as of
February 2012. The consensus since moved higher to $4.03. Over
the same time period estimates for 2013 have moved from $4.08 to
$4.64. The implied earnings growth rate of more than 15% is great
for a company that has been around for more than 30 years and has
a mature product.
Herbalife trades at some very attractive multiples. The trailing
twelve months PE of 9.2x is just about half the 18.1x industry
average. Similarly, the 7.7x forward PE multiple is also right
around half the 14.8x industry average. That is a significant
discount to the market. Price to sale of 1x has the company
trading at a premium to the industry average of 0.4x. The recent
depression in the stock price has been the single largest factor in
making these multiples move to such attractive levels.
A quick look at the price and consensus chart shows that despite
claims of a pyramid scheme and numerous bear attacks on its multi
level marketing model, the company continues to get higher and
higher earnings estimates. The gaps between the colored lines
show the continued growth in earnings, just what growth investors
want to see.
Brian Bolan is a Stock Strategist
Zacks.com. He is the Editor in charge of the Zacks Home Run Investor
service, a Buy and Hold service where he recommends the
in the portfolio
Brian is also the editor of Follow The Money Trader a
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