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Bear of the Day: Herbalife (HLF)

Kevin Cook
LINE Corporation (LN) sees solid earnings estimate revisions and looks poised to shock the market, and yet seems overlooked by the investors.

Herbalife (HLF) has fallen into the cellar of the Zacks Rank recently as Wall Street investment banks continue to shy away from the network marketer of health and nutrition products.

The Herbalife website now shows just 5 research houses covering the stock, with Citigroup and SunTrust the only two standout names.

After the company reported Q3 results on November 2, and provided guidance for the coming year, SunTrust analysts lowered their 2018 full-year EPS estimate by 8% from $5.65 to $5.20.

HLF delivered a slight EPS miss due to Mexico's earthquakes. But it was the forward outlook which brought the downward estimate revision.

Herbalife provided preliminary 2018 guidance including volume growth of 2% to 6% and revenue growth of 5.5% to 9.5%. The company also projected full-year EPS of $4.60 to $5.00.

But that midpoint of $4.80 does not reflect potential impacts from share buybacks or tax benefits from share-based compensation. These could shift the adjusted EPS guidance higher by as much as $0.50.

Still, that would put the best revised consensus under the prior estimate of $5.40. And we have yet to hear from Citigroup, who raised their price target from $71 to $73 in early October, while maintaining a hold rating.

Ackman Still in the Game

On October 5, HLF shares spiked from $68 to $76 on 7.5 million shares, possibly on word that Bill Ackman's hedge fund Pershing Square might be covering their big short position.

It was confirmed in early November that Ackman had indeed bought back his shares and was reengineering a new short position with put options.

You have to admire his concentration in and dedication to his investment ideas, even if those traits often become his Achilles heel -- think JC Penny (JCP), Valeant Pharma (VRX) and now Chipotle (CMG).

As the continuing saga of Herbalife unfolds, maybe this time, 5 years later, Bill has finally got it right.

Either way, just keep your eye on the Zacks Rank. It will tell you whether it's time to sell, or buy, HLF.

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