Will Herbalife Get Healthy in 2013?

As 2013 begins, now's a good time to look at the future prospects for the stocks you own. If you don't know where a company's headed in the next year and beyond, then it's impossible to make an informed decision about whether you should add the stock to your portfolio -- or sell it if you already own it.

Today, I'll look at Herbalife (NYSE: HLF  ) . The seller of nutritional supplements and weight-management products had put up lackluster numbers through mid-December, but in the past three weeks, the bottom has fallen out of the stock. Below, you'll learn more about Herbalife's prospects for 2013.

Stats on Herbalife

Average Stock Target Price

$75.43

Full-Year 2012 EPS Estimate

$4.03

Full-Year 2013 EPS Estimate

$4.56

Full-Year 2012 Sales Growth Estimate

17.4%

Full-Year 2013 Sales Growth Estimate

11%

Forward P/E

7.1

Source: Yahoo! Finance.

Will Herbalife heal itself in 2013?
Analysts have huge hopes for Herbalife, with a target price that's fully 130% above where the shares currently trade. With solid earnings and revenue growth projected for 2013, the stock's forward P/E of just 7 seems ridiculously cheap.

But in the past few weeks, the fight over Herbalife's legitimacy has gotten red-hot. Short-seller Bill Ackman of Pershing Square Capital Management gave a presentation explaining the rationale of his massive short position, alleging that the company is a pyramid scheme and has zero value for shareholders. Herbalife has promised to answer Ackman's accusations in a presentation scheduled for next Monday, but the market wasn't willing to wait and sent the stock plunging more than 35% in just three days.

Fundamentally, the stock seems poised to capitalize on a popular trend. With obesity drugs from Arena Pharmaceuticals (NASDAQ: ARNA  ) and VIVUS (NASDAQ: VVUS  ) getting a lot of attention but not yet creating sales, those looking for weight-loss alternatives have had to go either with nutritional solutions like Herbalife or custom-food programs Weight Watchers (NYSE: WTW  ) or NutriSystem (NASDAQ: NTRI  ) . Without inquiries from Ackman and David Einhorn casting those figures into doubt, Herbalife would look like a huge value.

Looking forward, a lot will depend on how the company comes off on its analyst day next Monday. Without a strong performance, more selling pressure could send shares even lower.

The future of wellness
Whether it's nutritional supplements or obesity drugs, the potential market for weight-management products is massive. But so are the risks. To learn more about the obesity-drug angle on this trend, grab copies of our premium research reports on Arena Pharmaceuticals and VIVUS today. In the reports, our senior biotech analyst, Brian Orelli, Ph.D., breaks down each company's strengths and weaknesses, and explains the critical issues you need to know about. News in this space moves fast, so both reports come with a full year of updates. Click now for exclusive information on Arena and VIVUS.

Click here to add Herbalife to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.


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