Bull of the Day: Herbalife (HLF) – Bull of the Day

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.

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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