North America

Earnings Preview: Herbalife Q1 2017 (HLF)

By: Craig Bowles

Overview

Herbalife Ltd. (HLF) is slated to report 1Q 2017 earnings after the close of trading on Thursday, May 4th. 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.

hlfP

Outliers & Strategy

Key measures:

  • Adjusted Earnings Per Share (EPS): Company guidance is for $0.75 to $0.95. The current Street estimate is $0.89 (range $0.85 to $0.94). (Source: Yahoo! Finance) Consensus was $1.29 three months ago.
  • Revenues: Analysts expect a decrease of 6.3% y/y to $1.05 bln.
  • Adjusted Earnings Per Share (EPS) Guidance for 1Q2017: The current Street estimate is $1.08 (range $1.03 to $1.16).
  • Adjusted Earnings Per Share (EPS) Guidance for FY2017: Company guidance is $3.65 to $4.05. The Street estimate is $3.96.
  • Herbalife’s Price/Earnings of 20.8 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 14.8 vs a 5yr average of 8.1.
  • Analysts are view Herbalife with 2 Buy, 2 Hold, and 0 Sell ratings. (source: MarketBeat.com)
  • Insiders bought 105,067 shares in the past three months and have bought a net 5,580,860 shares in the past year. (source: NASDAQ.com) The company approved a $1.5 billion stock buyback in February 2017.
  • 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 9.76%. Options are pricing in an implied move of 7.27% off earnings.

Recent News

  • 04/24: Tigress Financial initiated coverage of Herbalife with a Buy rating. Herbalife can now focus on growth and new product launches with the Federal Trade Commission issues behind it, according to a post on thefly.com.
  • 04/18: Ackman thinks the month of May could be critical, a point at which Herbalife CEO Michael Johnson is stepping down as CEO and the terms of the Federal Trade Commission’s $200 mln penalty take effect, according to a post on valuewalk.com.
  • 03/14: Citigroup initiated coverage on Herbalife with a Neutral rating and $58 (8% upside) price target. Expects gross margin to fall this year due to currency moves and believes the stock should trade at a 15% discount to the market, according to a post on Seekingalpha.com.
  • 03/13: Carl Icahn raised his stake in Herbalife as shares were nearing a two-month low, according to a post on Barron’s.com.

Technical Review

Herbalife shares have found resistance in the upper $60s since 2012. Anytime you see such multi-year consolidation, the breakout potential becomes magnified. It’s been such choppy consolidation that this is more than your basic “dead in the water” stock that has been simply forgotten. Hopefully it will become that before a breakout occurs. Analysts and traders show less interest each quarter, so that’s a good sign. (Chart courtesy of StockCharts.com)

hlfC

Summary

Accusations for Herbalife range from money laundering for the Latin American drug trade to being a pyramid scheme keeps you wondering about rumors by shorts trying to exit positions.  Stock buybacks got the expected boost this year from financing that surprisingly was oversubscribed by nearly double. The company has grown revenue and earnings admirably despite the negative publicity and attacks. Insiders bought more in the past three months, so are “eating their own cooking.” Herbalife was private during 2002-2004, so you wonder if taking the company private again might be considered but Carl Icahn happily bought more shares. The company has beaten analyst consensus by an average of 13c the last four quarters. Estimize doesn’t currently show estimates to compare to analyst consensus of $0.89 on revenue of $1.05 bln. Guidance will also be factored into the reaction following results.

 

DISCLAIMER:  By using this report, you acknowledge that Selerity, Inc. is in no way liable for losses or gains arising out of commentary, analysis, and or data in this report. Your investment decisions and recommendations are made entirely at your discretion. Selerity does not own securities in companies that they write about, is not an investment adviser, and the content contained herein is not an endorsement to buy or sell any securities. No content published as part of this report constitutes a recommendation that any particular investment, security, portfolio of securities, transaction or investment strategy is suitable for any specific person.