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Why Did Herbalife Rise ~4.6% on August 29?

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Aug. 30 2016, Updated 7:04 p.m. ET

Price movement

Herbalife (HLF) has a market cap of $6.0 billion. It rose by 4.6% to close at $63.30 per share on August 29, 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were -0.31%, -6.9%, and 18.1%, respectively, on the same day. HLF is trading 2.5% below its 20-day moving average, 0.50% above its 50-day moving average, and 10.2% above its 200-day moving average.

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Related ETFs and peers

The PowerShares Dynamic Market Portfolio ETF (PWC) invests 0.55% 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 2.4% on August 29.

The iShares Russell 3000 ETF (IWV) invests 0.02% of its holdings in Herbalife. The ETF tracks a cap-weighted index that measures the investable US equities market, covering the entire market-cap spectrum, including micro-caps.

The market caps of Herbalife’s competitors are as follows:

  • GNC Holdings (GNC) — $1.4 billion
  • Nu Skin Enterprises (NUS) — $3.4 billion
  • Archer Daniels Midland (ADM) — $25.0 billion

Latest news on Herbalife

Herbalife rose by more than 4.6% on August 29, 2016, after Carl Icahn announced that he bought more than 2.3 million shares in Herbalife. In a press release on August 26, 2016, Reuters reported, “Herbalife Ltd’s biggest critic, hedge fund manager Bill Ackman, said he had been approached to buy shares in the nutritional supplements maker from billionaire investor Carl Icahn.” The release added that “Ackman, who has bet more than $1 billion against Herbalife, said on CNBC that Icahn’s planned stake sale would accelerate the company’s downfall.”

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Performance in 2Q16

Herbalife reported 2Q16 net sales of $1.2 billion, a rise of 3.4% over the net sales of $1.16 billion in 2Q15. Its sales in North America, EMEA (Europe, the Middle East, and Africa), and China rose by 15.9%, 13.0%, and 2.5%, respectively. Its sales in Mexico, South and Central America, and the Asia-Pacific region fell by 7.7%, 10.2%, and 1.9%, respectively, between 2Q15 and 2Q16.

Its net income and EPS (earnings per share) fell to -$22.9 million and -$0.28, respectively, in 2Q16, compared with $82.8 million and $0.97, respectively, in 2Q15. It reported adjusted EPS of $1.29 in 2Q16, a rise of 4.0% over 2Q15.

Herbalife’s cash and cash equivalents rose by 5.3% and its inventories fell by 2.9% between 4Q15 and 2Q16. Its current ratio fell to 1.1x in 2Q16 from 1.5x in 4Q15.

Projections

The company made the following projections for 3Q16:

  • volume point growth of 5.0%–8.0%
  • net sales growth of 2.0%–5.0%
  • adjusted EPS of $0.98–$1.08
  • capital expenditure of $35.0 million–$45.0 million
  • currency adjusted net sales growth of 5.5%–8.5%
  • currency adjusted EPS of $1.12–$1.22

The company’s adjusted EPS guidance includes a projected unfavorable impact from currency exchange rates of ~$0.14 per share.

The company made the following projections for 2016:

  • volume point growth of 4.5%–7.5%
  • net sales growth of 1.5%–4.5%
  • adjusted EPS of $4.50–$4.80
  • capital expenditure of $160 million–$180 million
  • effective tax rate of 27.5%–29.5%
  • currency adjusted net sales growth of 7%–10%
  • currency adjusted EPS of $5.4–$5.7

The adjusted EPS guidance includes a projected currency headwind of ~$0.90 per share. Next, we’ll look at PepsiCo (PEP).

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