Bull of the Day: Herbalife (HLF) - Bull of the Day
02 Oktober 2013 - 9:22AM
Zacks
Herbalife (HLF) the subject of a lot of controversy but it
is also a Zacks Rank #1 (Strong Buy).
Herbalife Beats Estimates in 28 Straight Quarters
Herbalife has topped the Zacks Consensus Estimate in each of the
last 28 quarters which is a pretty unique accomplishment.
The last two beats were $0.20 and $0.22 -- but put in better
perspective when you look at the percentage surprise. The March
2013 quarter came in 18.7% ahead of expectations and the June 2013
quarter was 18.5% ahead of analysts’ estimates. Those are some
pretty big beats.
Company Description
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 the target of short seller Bill Ackman
In a mid-December 2011 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.
More recently, the CEO of POST also threw his hat in the ring
and bought a 5% position in the company. As an operator in the
space and having done his own due diligence including becoming a
HLF distributor, the bets are piling up against Bill Ackman.
Herbalife Sees Estimates Moving Higher
Estimates for Herbalife have been rising of late. The Zacks
Consensus Estimate for 2013 for HLF stood at $4.66 as of February
2013. By June of this year, the consensus had risen to $4.81. The
consensus has since moved higher to $4.99.
Over the same time period estimates for 2014 have moved from
$5.40 to $5.52 and are now at $5.68. This implies earnings growth
of 13.8%
Valuation
Herbalife trades at some very attractive multiples. The trailing
twelve months PE of 14.6x is well below the 20x industry average.
Similarly, the 14x forward PE multiple is also trading at a
discount to the 18x industry average. Price to sales multiple of
1.6x has the company trading at a premium to the industry average
of 0.5x. One metric I like to focus on is the net margin and HLF
sports a 11.3% net vs a 3.8% industry average. Given the low
multiples and substantially higher net margin than the industry, it
is apparent that the valuation is still depressed based on the
resistance from short sellers as investors are still cautious on
the idea of the stock being a pyramid scheme.
The Chart
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.
Full Disclosure
I am long HLF in my trading and IRA account. In fact, it’s the
only stock I own.
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Brian Bolan is a Stock Strategist for Zacks.com. He is the
Editor in charge of the Zacks Home Run Investor service, a Buy and
Hold service where he recommends the stocks in the portfolio.
Brian is also the editor of Breakout Growth Trader a trading
service that focuses on small cap stocks and also carries a risk
limiting strategy. Subscribers get daily emails along with buy, and
sell alerts.
Follow Brian Bolan on twitter at @BBolan1
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