Herbalife - Growth & Income
04 Dezember 2012 - 1:00AM
Zacks
Herbalife Limited (HLF) has put together an impressive
streak of 15 straight quarters with positive earnings surprises.
Furthermore, the global nutrition company continues to generate
impressive free cash flow, which it has been using for share
repurchases and dividends. A healthy dividend yield of 2.7% and an
expected long-term earnings growth rate of 14.9% make this Zacks #2
Rank (Buy) suitable for investors seeking both growth and income.
Strong Q3 Results and Upbeat Guidance
On October 29, Herbalife came out with third-quarter earnings of
$1.04 per share, beating the Zacks Consensus Estimate by nearly 3%
and the year-ago earnings by 20.0%.
Net sales climbed 14% to $895 million, due to strong sales
across the globe as worldwide volumes surged 17%. All six of the
company’s geographic regions experienced double-digit volume
growth.
In addition to its impressive third-quarter results, the company
provided an encouraging initial earnings guidance for 2013.
Herbalife expects earnings between $4.40 and $4.55 per share next
year, which assumes year-over-year sales growth of 10%-12%.
Earnings Estimates
Over the last 60 days, the Zacks Consensus Estimate for 2012 has
increased 1.3% to $4.02 per share, implying year-over-year growth
of approximately 21.5%. Moreover, the Zacks Consensus Estimate for
2013 increased 0.7% to $4.55 over the same time frame, representing
a year-over-year increase of approximately 13.2%.
Constant Dividend
In the third quarter, Herbalife continued to generate strong
free cash flow, which allowed it to repurchase shares worth $181.9
million. The company also paid dividends worth $32.4 million during
the quarter. It currently yields a solid 2.7%.
Reasonable Valuation
Herbalife’s valuation looks reasonable. On a price-to-sales
basis, shares are trading at 1.29x, which represents a huge premium
to the peer group average of 0.34x. Also, on a price-to-book basis,
shares are trading at 13.58x, a huge premium to the peer group
average of 2.18x. Given the company’s strong fundamentals, the
premium valuation is justified and well supported by its long-term
estimated earnings growth rate of 14.9%, which is above the peer
group average of 13.7%.
The PEG ratio of 0.75 is also attractive. The stock currently
trades at a forward P/E of 11.21x, reflecting a discount compared
with the peer group average of approximately 11.59x.
Furthermore, it has a trailing 12-month ROE of 102.9%, which is
substantially above its peer group average of 18.6%. This implies
that the company reinvests its earnings more efficiently than its
peer group.
The chart below shows that the share price has been generally
tracking the company’s earnings performance. Given the increasing
trend of the Zacks Consensus Estimate, the share price should
continue increasing. With strong earnings momentum, solid growth
prospects and a shareholder-friendly management, Herbalife offers a
lot of upside potential.
Herbalife, a global nutrition company headquartered in Grand
Cayman, the Cayman Islands and founded in 1980, focuses on selling
weight management, nutrition and personal care products to support
a healthy lifestyle. The company, which has a market cap of $5.04
billion, sells its products in 85 countries. The products of the
company are sold to and through a network of independent
distributors.
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HERBALIFE LTD (HLF): Free Stock Analysis Report
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