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Why Did Herbalife Stock Soar in March?

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Herbalife stock has risen 19% YTD

Herbalife (HLF), a global nutrition and weight management company, has been having a strong run. HLF stock has risen about 19.0% YTD (year-to-date) as of March 28, 2017. Much of this growth stems from the continued investment of activist investor Carl Icahn. On March 13, 2017, Icahn disclosed that he has increased his stake in the company. Since the announcement, Herbalife stock has risen 6.6%.

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Peer performance

The above graph shows that YTD, Herbalife stock has not only outpaced the S&P 500 (SPX) but has also performed better than all of its peers. As of March 28, 2017, Nu Skin Enterprises (NUS), Usana Health Sciences (USNA), Vitamin Shoppe (VSI), and GNC Holdings (GNC) have generated returns of 15.4%, -5.1%, -16.2%, and -35.5%, respectively.

What lies ahead?

Herbalife has been a bone of contention between two of Wall Street’s largest hedge fund giants–Icahn and Bill Ackman. The duo publicly contradicted each other regarding the prospects of the company. Ackman declared Herbalife a pyramid scheme and argued that the stock will eventually go to zero. Icahn contradicted him, continuing to raise his stake in the company, which seems to be paying off.

However, given the company’s lukewarm results in 4Q16, which ended December 31, 2016, and a weak outlook for 2017, Herbalife stock could see a limited upside in the near term. We’ll take a close look at the company’s recent performance in Parts 2 and 3 of this series.

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Herbalife expects net sales to rise in 2017, supported by volume growth. It introduced more than 460 new products in 2016, including new flavors of tea and Formula 1 Shakes, which it expects will bode well with consumers’ tastes and preference patterns. It also announced a joint venture with China-based Tasly Holding Group, a leading health products and services company with expertise in TCM (traditional Chinese medicine). The move is likely to fortify Herbalife’s product portfolio of nutrition brands.

Series overview

Herbalife accounts for 0.23% of the Vanguard Consumer Staples ETF (VDC). In this series, we’ll focus on Herbalife’s recent performance. We’ll also look at the company’s valuation, its outlook, and analysts’ recommendations.

Let’s start by look at the company’s outlook and its performances for the last reported quarters.

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