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Herbalife’s Stock Rises after Being Cleared of Allegations

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Price movement of Herbalife

Herbalife (HLF), which has a market cap of $4.4 billion, rose by 3.6% to close at $47.86 per share on February 1, 2016. The company’s weekly, monthly, and YTD (year-to-date) stock price movements came in at 5.8%, -11.1%, and -10.7%, respectively.

Technically, Herbalife’s stock has broken support and is trading below all moving day averages—namely, 2.1% below its 20-day moving average, 9.7% below its 50-day moving average, and 9.7% below its 200-day moving average.

The PowerShares Dynamic Market Portfolio ETF (PWC) invests 0.43% of its holdings in Herbalife. The ETF tracks a quant-selected, tier-weighted index covering the entire US equity market. The YTD price movement of PWC was -8.3% as of January 29, 2016.

Here are the market caps of a few of Herbalife’s biggest competitors:

  • GNC Holdings (GNC)—$2.3 billion
  • Nu Skin Enterprises (NUS)—$1.8 billion
  • Archer-Daniels-Midland Company (ADM)—$21.2 billion
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Cleared of allegations, Herbalife’s fiscal 3Q15 performance

Herbalife’s stock price has gone up since the US government cleared the charges hanging over the company related to an alleged fraudulent business model. Meanwhile, Dr. John Agwunobi has been appointed as Chief Health and Nutrition Officer of Herbalife.

Herbalife reported 3Q15 net sales of ~$1.1 billion, down by 12.2% compared to the net sales of nearly $1.3 billion we saw in fiscal 3Q14. The company’s cost of sales as a percentage of net sales and gross profits fell by 10.0% and 10.5%, respectively, in fiscal 3Q15 compared to fiscal 3Q14.

Herbalife’s key metrics from fiscal 3Q15

Herbalife’s net income and EPS (earnings per share) rose to $93.6 million and $1.09, respectively, in fiscal 3Q15, compared to $11.2 million and $0.13, respectively, in fiscal 3Q14.

Meanwhile, the company’s cash and cash equivalents rose by 26.0%, and its inventories fell by 16.4% in fiscal 3Q15 over fiscal 4Q14. Its current ratio fell to 1.4 in fiscal 3Q15 compared to the 1.6 we saw in fiscal 4Q14. The PE (price-to-earnings) and PS (price-to-sales) ratios of Herbalife were 11.4x and 0.98x, respectively, as of February 1, 2016.

Projection

The company has made the following projections for fiscal 4Q15, fiscal 2015, and fiscal 2016:

  • For fiscal 4Q15, the company expects net sales growth to be between -8.5% and -5.5% and its adjusted EPS in the range of $0.85–$0.95.
  • For fiscal 2015, Herbalife expects net sales growth in between -11.1% and -10.4%. The company’s adjusted EPS is expected to be in the range of $4.65–$4.75, and it projects free cash flows to be in the range of $490–$510 million.
  • For fiscal 2016, the company expects net sales growth in the range of 4.5%–7.5% and adjusted EPS in the range of $4.35–$4.75.

Herbalife will declare its fiscal 4Q15 and fiscal 2015 financial results on Thursday, February 25, 2016.

In the next and final part of this series, we’ll look at Monster Beverage as of February 1.

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