Bullish on HLF Stock
Herbalife Ltd. (NYSE:HLF) released a better-than-expected quarter last February. On average, analysts expected HLF stock to report quarterly earnings per share (EPS) of $0.94 on revenue of $1.06 billion.
Herbalife is a nutritional supplements direct sales company that operates worldwide. Herbalife distributes its products in 95 countries through a network of about 3.2 million independent representatives in a multi-level marketing operation. (Source: “For Investors, Herbalife Looks Better Than Weight Watchers,” The Street, February 29, 2016.)
In 2012, hedge fund manager Bill Ackman accused Herbalife of running a pyramid scheme. Despite vehement denials from the company, Ackman bet against it and lost. Ackman was expecting the share price to drop to the mid-$30.00s. Instead, HLF stock gained 24% on Wall Street—and it is poised to go higher still, perhaps reaching for its all-time high of $88.00.
HLF stock is currently trading in the $56.00 range, sustained by bullish sentiment. Herbalife closed its fiscal year (ended December 31, 2015) with a net profit of $339 million. Sales were lower year-over-year due to the unfavorable effect of currency exchange rates. This makes the earnings results all the more remarkable. The company adopted a new marketing plan, targeting long-term growth. The results suggest that management has taken the right steps.
Earnings were not the only positive factor boosting HLF stock. Perhaps, the most important issue for investors is that an FTC probe into Herbalife, inspired by Ackman’s accusations, is ending. Herbalife says it expects the outcome to range from a settlement to a full clearing of the allegations.
Certainly, the recent performance of Herbalife stock has shown that the market has dismissed the worst-case scenario for Herbalife—the company shutting down. (Source: “Herbalife said it’s talking to the FTC and now the stock is exploding higher,” Business Insider, February 26, 2016.)
Herbalife stock should continue to perform well. The approaching conclusion of the probes will release the company from the allegations that brought down its share price in recent years.
Tim Ramey, a bullish analyst on Herbalife, said over a year ago that Herbalife is “a company with much greater compliance and better supervision of its members and a company that will likely continue to grow, meaningfully, despite these challenges. It remains an impressive growth engine.” (Source: “Herbalife Bull Is Back, More Bullish Than Ever,” The Wall Street Journal, October 22, 2014.)
As the investigative noise clears, Herbalife stock could be headed back toward its pre-problem levels last seen in 2014, when HLF stock hit $88.00 per share.