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Herbalife Earnings: An Early Look

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Earnings season is in full swing, with huge numbers of companies having already given their latest numbers to investors, and Herbalife (NYSE: HLF  ) is about to release its quarterly earnings report. The key to making smart investment decisions with stocks releasing their quarter reports is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed, knee-jerk reaction to news that turns out to be exactly the wrong move.

Herbalife has been mired in controversy, as activist investor Bill Ackman accused it of being a pyramid scheme, sending shares plunging. But other money managers have put their money into the bullish camp. Who'll prove right? Let's take an early look at what's been happening with Herbalife over the past quarter and what we're likely to see in its quarterly report next Tuesday.

Stats on Herbalife



Analyst EPS Estimate


Change From Year-Ago EPS


Revenue Estimate

$1.05 billion

Change From Year-Ago Revenue


Earnings Beats in Past 4 Quarters


Source: Yahoo! Finance.

Can Herbalife get healthy again?
Notwithstanding the fireworks surrounding the stock, analysts have been pretty bullish about Herbalife's earnings prospects. Over the past three months, they've raised their consensus forecast on its earnings per share by $0.02, and pushed full-year 2013 estimates up nearly a dime. Yet after a big rebound from its lows, the stock has pretty much gained back all of its losses since mid-November.

In battles like the one Herbalife is fighting, company fundamentals get shoved to the side. Ackman's allegations go to the core of Herbalife's business model, essentially questioning whether Herbalife's own reported figures for product sales are credible in light of competitors' volumes. In rebuttal, Herbalife management argued that it is just one of many legitimate multilevel marketing operations that rely on a sales force of distributors to sell their products.

Since then, new players have emerged. Value investor Dan Loeb has taken a substantial stock position in Herbalife, and just yesterday, Carl Icahn disclosed taking a nearly 13% stake after having gotten into a shouting match with Ackman on CNBC over the company last month.

What's interesting is how other stocks throughout the MLM industry have responded to the ongoing battle. Weight-loss specialist Medifast (NYSE: MED  ) and personal-care companies Usana (NYSE: USNA  ) and Nu Skin (NYSE: NUS  ) all plunged when the Herbalife accusations went public, indicating fears that Ackman was casting doubt on the entire industry. Since then, Medifast has remained lower, but Nu Skin and Usana gained back much of their lost ground.

Understand that many bearish investors will completely ignore Herbalife's earnings report, believing that the figures don't reflect reality. Don't fall prey to the impulse to trust your beliefs without at least acknowledging the reported figures. Keeping your thoughts rational and your mind open to all possibilities are essential if you want to avoid making a major mistake with Herbalife right now.

Get past the drama
Where Herbalife will go is anyone's guess at this point, but what's certain is that it will be volatile for a long time. If you'd prefer a less sensational but still compelling pick, look at what The Motley Fool's chief investment officer has selected his No. 1 stock for the next year. We reveal it in our free report: "The Motley Fool's Top Stock for 2013." I invite you to take a copy, free for a limited time. Just click here to access the report and find out the name of this under-the-radar company.

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

Read/Post Comments (1) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 18, 2013, at 3:33 PM, Millsteen wrote:

    About 30 years ago I was introduced to Herballife as a way to lose weight with healthy drinks and products. The salespeople of herbal life made the most money by being high up in the pyramid making money off the sales of the lower tier associates. The founder of herbal life, Mark Hughes, started the healthy diet alternative in his 20's after his mother died from abusing prescription diet pills. Mark later died at 44 from alcohol and pill abuse. My wife and I used the product when it was first introduced and then became sales associates, bought a lot of products where it sat on our shelves for years until we moved and threw most of it out. I lost track of Herballife until years later I was astounded to see they were a public traded company. I know there has been controversy around them for years and this company has had nine lives. I find it amusing that Icahn and Ackman are going at each other over this company. My advice for the small investor is to stay away from this fray. Either bet smells fishy and these guys can afford to lose money on this battle of egos. Ackman is the guy who made a huge $300 million bet on the failed Borders and Ichan has had his share of failures and yet the financial community refers to them as genius investors. Right!

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