Herbalife Ltd HLF recently updated its guidance for the upcoming third-quarter 2017 results. The company now expects adjusted earnings in the range of 80-90 cents per share, higher than its previously anticipated range of 65-85 cents. The Zacks Consensus Estimate of 82 cents for the third quarter lies within the management’s guided range.
Excluding currency headwinds, earnings are now expected in the range of 84-94 cents, as compared with the earlier estimate of 70-90 cents. We note that the company’s earnings have outpaced the Zacks Consensus Estimate for 11 straight quarters now, with an average beat of 25.1% in the trailing four quarters.
Despite the improved earnings outlook, investor’s reaction toward Herbalife’s shares has been dismal. Shares of the company have inched up 0.1% in the after-hours trading session on Oct 2, post the announcement. The company’s shares have also underperformed the
industry in the past three months. In the said time frame, Herbalife’s shares have declined 5.7% compared with the industry’s fall of 0.6%.
We believe that the continued decline in sales volume and net sales has been hampering investor confidence. Stringent FTC regulations in the United States, softness in its Mexico operations and price hike in China have been impacting the company’s sales volumes in the recent times.
As part of its updated guidance, Herbalife now expect sales volume to decline in the range of 4.8-6% compared with its previously anticipated decline of 2-7%. Further, the company expects net sales to decline in the range of 1.9-3.4%. Previously, the company expected net sales in the range of flat to a decline of 5%.
Self Tender Offer & Commitment Toward Shareholders
The updated third-quarter earnings guidance is expected to assist shareholders in determining whether or not to participate in Herbalife’s self tender offer, initiated on Aug 21 and expiring on Oct 5. Per the norms of the self tender offer, the company by way of a “modified Dutch auction” plans to buy back $600 million worth common stock, in cash at a price of not less than $60 or exceeding $68. Also against each of its tendered shares, shareholders will be provided with a non-transferable contractual contingent value right (CVR). This will allow shareholders to receive a contingent payment in cash, in case Herbalife gets acquired through a private transaction in the forthcoming two years.
On Aug 16, the company held talks with an undisclosed prospective financial investor which indicated that there might be a possibility of Herbalife becoming privately acquired, per media sources.These talks ended with no formal decisions. Nevertheless, the company’s board of directors decided to offer shareholders with adequate protection in case of a private acquisition. Such a move indicates that the company’s commitment toward enhancing shareholder value. (Read More:
Herbalife Initiates Tender Offer, Indicates Going Private) Positive on the Road Ahead
This Zacks Rank #2 (Buy) company remains confident regarding its performance which is reflected in its solid earnings history. The company has also been progressing well with its cost-saving measures and technology innovations. Moreover, Herbalife currently carries a
VGM Score of A, indicating its inherent growth potency.
With these aspects in mind, we need to wait and see whether shareholders exhibit confidence in the stock in the forthcoming periods and uplift its share performance.
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Investors may also consider other stocks from the same sector such as Burlington Stores Inc
BURL, Five Below Inc ( FIVE Quick Quote FIVE - Free Report) and The Children's Place Inc PLCE, all carrying a Zacks Rank #2. You can see . the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here
Burlington Stores delivered an average positive earnings surprise of 17.7% in the trailing four quarters. It has a long-term earnings growth rate of 16.2%.
Five Below pulled off an average positive earnings surprise of 8.7% in the trailing four quarters. It has a long-term earnings growth rate of 28.5%.
The Children's Place came up with an average positive earnings surprise of 16.3% in the trailing four quarters. It has a long-term earnings growth rate of 9%.
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