North America

Earnings Preview: Herbalife Ltd. Q4 2016 (HLF)

By: Craig Bowles

Overview

Herbalife Ltd. (HLF) is slated to report 4Q 2016 earnings after the close of trading on Thursday, February 23rd. Results are typically released at approximately 4:05 p.m. ET followed by a conference call at 5:30 p.m. available through Herbalife Investor Relations.  Herbalife is a multi-level marketing company that develops markets and sells nutrition, weight management and skin-care products globally.

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Outliers & Strategy

Key measures:

  • Adjusted Earnings Per Share (EPS): Company guidance is for $0.80 to $1.00. The current Street estimate is $0.97 (range $0.92 to $1.02). (Source: Yahoo! Finance) Consensus was $0.98 three months ago.
  • Revenues: Analysts expect a decrease of 4.3% y/y to $1.05 bln.
  • Adjusted Earnings Per Share (EPS) Guidance for 1Q2017: The current Street estimate is $1.29 (range $1.23 to $1.35).
  • Adjusted Earnings Per Share (EPS) Guidance for FY2017: Company guidance is for $4.60 to $5.00. The current Street estimate is $5.00 (range $4.65 to $5.35).
  • Herbalife’s Price/Earnings of 21.4 compares to a 5-year average of 13.9; Price/Sales of 1.2 vs a 5-year average of 1.3, Price/Cash Flow of 13.6 vs a 5yr average of 8.1.
  • Analysts are view Herbalife with 1 Buy, 2 Hold, and 0 Sell ratings. (source: MarketBeat.com)
  • Insiders did not trade over the last three months and have bought a net 5,452,297 shares in the past year. (source: NASDAQ.com) The company bought back $306 million worth of stock in 2013 and $1.3 billion in 2014 but 2015 and 2016 each had less than $20 million in stock repurchases. Recently acquired financing could boost buybacks.
  • Herbalife results could impact other personal product companies, such as GNC Holdings (GNC), USANA Health Sciences (USNA), Nu Skin Enterprises (NUS) and Weight Watchers (WTW).
  • Herbalife has a 1-day average price change on earnings of 10.57%. Options are pricing in an implied move of 7.63% off earnings.

Recent News

  • 02/15: Herbalife acquired a $1.45 billion senior credit facility. Underwriters received about $2.7 billion in offers, according to a post on Benzinga.com.
  • 01/20: The U.S. government is investigating Herbalife over alleged bribery in China, according to a post on CNBC.com.
  • 01/19: Herbalife is in talks for a $1.2 billion term loan and a $1.175 billion refi, according to a post on Benzinga.com.
  • 01/13: Pivotal Research reiterated a Buy rating on Herbalife citing organic growth and also in part on the news that FTC Chair and critic Edith Ramirez will step down next month, according to a post on StreetInsider.com.
  • 11/03: Herbalife CEO plans to step down in June but will remain executive chairman. COO Rich Goudis will become CEO, according to a post on Fortune.com.

Technical Review

Herbalife shares have bounced back from the 2014 decline. Rolling over again would produce a massive head-and-shoulders topping formation dating back to mid-2011. Point and figure technicians have a bullish price objective of $66. The stock has basically fluctuated for six years, so a breakout in either direction would likely surprise in both duration and magnitude. (Chart courtesy of StockCharts.com)

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Summary

October’s accusation of money laundering and participating in the Latin American drug trade for Herbalife disappeared as quickly as they appeared and makes you wonder about rumors by shorts trying to exit positions.  Stock buybacks could get a renewed boost from financing that surprisingly was oversubscribed by nearly double. The company has grown revenue and earnings admirably despite the negative publicity and attacks. Insiders didn’t buy more the past three months but selling dried up over the past year. The company was private during 2002-2004, so you wonder if taking the company private again might be considered. The company has beaten analyst consensus by an average of 18c the last four quarters. Estimize consensus for an adjusted EPS of $0.86 on revenue of $1.043 bln compares to analyst consensus of $0.97 on revenue of $1.05 bln. Guidance will also be factored into the reaction following results.

 

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