Ahead of the Bell: Herbalife

Herbalife rises in premarket trading as analyst ups price target following favorable ruling

Associated Press

NEW YORK (AP) -- Shares of Herbalife climbed in premarket trading Wednesday and Janney Capital Markets increased its price target after a Belgian court of appeals overturned an earlier decision that found it was operating as a pyramid scheme.

Critics have long questioned Herbalife Ltd.'s business model, which uses a network of distributors to sell its nutritional supplements and weight-loss products globally. That includes accusations that the company is a pyramid scheme, in which a company makes most of its money by recruiting new salespeople, rather than on the products that they sell.

Herbalife faced that accusation in the U.S. from hedge fund manager William Ackman, who shorted the company's stock before an elaborate investor presentation, and in Belgium from consumer organization Test-Aankoop. The latter led to the only court ruling in the company's more than 32-year history that it runs an illegal pyramid scheme.

The company said Tuesday that it always believed that the first judgment contained factual errors and was based on misinterpretations of its direct-selling sales method, and was confident that the original judgment would be overturned on appeal.

Herbalife, which is incorporated in the Cayman Islands and based in Los Angeles, said the appeals court found that its sales model is in full compliance with Belgian law.

John San Marco of Janney Capital Markets said that aside from the favorable Belgium ruling, Herbalife has had some noteworthy accomplishments of late, including sustained fundamental strength, improved distributor/compliance policies and a 5 percent reduction in its share count.

The analyst boosted Herbalife's price target to $79 from $71 and kept a "Neutral" rating.

Herbalife's stock added 15 cents to $76.80 before the opening bell.

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