Shares of Herbalife Ltd. HLF has rallied more than 3% since Mar 13 after activist investor Carl Icahn announced that he has raised his stake in the company. Billionaire financier Icahn, of Icahn Enterprises (IEP), a diversified holding company has spent around $19 million and boosted his stake to 24.57% from 24.18%. In fact, in Sep 2016, Icahn took permission from the U.S. Federal Trade Commission (FTC) to acquire up to a 50% stake in Herbalife.
Icahn, the largest shareholder in Herbalife, purchased 2.3 million shares of Herbalife in Aug 2016 and then added another 306,846 shares earlier in Sept 2016.
Herbalife LTD. Price, Consensus and EPS Surprise
Herbalife LTD. Price, Consensus and EPS Surprise | Herbalife LTD. Quote
Icahn is buying shares ahead of the upcoming release of the Betting On Zero documentary. The movie, which opens in the United States on Mar 17, follows Pershing Square Capital manager Bill Ackman’s $1 billion short bet on Herbalife and his drive to expose the company as a pyramid scheme.
This shows that Icahn has full confidence in the nutritional products maker Herbalife despite continuous allegations by Ackman.
Icahn and Ackman have been battling over Herbalife for years. Icahn's position in Herbalife is worth more than a billion dollars. Ackman, on the other hand, took a short position in the company in late 2012. He claimed that the company is running a pyramid scheme, which involves money making by recruiting more sales people instead of selling products. Such models are illegal because they eventually collapse once there are no more people to recruit.
Ackman's back-to-back allegations prompted a civil investigative demand in 2014 by the FTC related to the company’s marketing practices and has adversely affected the share prices. The stock has declined 8.5%, in comparison to the Retail-Wholesale sector which has gained 8.4% in the past one year.
Nevertheless, it is encouraging that Herbalife remains upbeat in its results. The company reported better-than-expected earnings results in all the last four quarters with an average positive surprise of 14.53%.
In mid-July 2016, Herbalife reached a settlement with the FTC, and agreed to pay $200 million settlement fine. This settlement was in favor of Herbalife as the FTC asked the company to not to change its core business model but to fundamentally restructure its business so that participants are rewarded for what they sell. Ackman however maintains his stance against Herbalife even after the maker of weight-loss shakes and supplements reached a settlement with the FTC.
Zacks Rank and Other Key Picks
Herbalife currently carries a Zacks Rank #4 (Sell).
Some better-ranked stocks in the retail sector are The Children's Place, Inc. PLCE, Kate Spade & Company KATE and Burlington Stores, Inc. BURL. While Children’s Place holds a Zacks Rank #1 (Strong Buy), Kate Spade and Burlington Stores carry a Zacks Rank #2 (Buy). You can seethe complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
While Children’s Place carries an expected long-term earnings growth of 10.3%, Kate Spade and Burlington Stores have expected earnings growth of 28.3% and 15.9%, respectively, for the next three to five years.
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