uploads/2016/09/hlf-pm-2.png

Herbalife Continues to Rise on Carl Icahn’s Increased Stake

By

Updated

Price movement

Herbalife (HLF) rose 1.6% to close at $62.03 per share during the second week of September 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were 1.6%, -4.1%, and 15.7%, respectively, as of September 16. HLF is trading 0.03% above its 20-day moving average, 2.8% below its 50-day moving average, and 7.3% above its 200-day moving average.

Article continues below advertisement

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 1.6% on September 16.

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): $1.5 billion
  • Nu Skin Enterprises (NUS): $3.2 billion
  • Archer Daniels Midland Company (ADM): $24.6 billion

Latest news on Herbalife

In a release on September 14, 2016, Bloomberg reported, “Already the largest shareholder in the maker of nutritional products, Carl Icahn said he’s asked the US Federal Trade Commission for permission to buy as much as 50 percent of the company.”

Bloomberg also reported, “Icahn also said at the CNBC Institutional Investor Delivering Alpha Conference Tuesday that Herbalife may be better off as a privately held company and that he would consider a tender offer.”

Article continues below advertisement

Performance in 2Q16

Herbalife reported 2Q16 net sales of $1.2 billion, a rise of 3.4% over 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, in the quarter. 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 to $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 5.3%, and its inventories fell 2.9% between 4Q15 and 2Q16. Its current ratio fell to 1.1x in 2Q16 from 1.5x in 4Q15.

Projections

The company has 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 has 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.

For an ongoing analysis of this sector, please visit Market Realist’s Consumer Discretionary page.

Advertisement

More From Market Realist