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Why Herbalife Stock Is Jumping Today

By Todd Campbell – May 5, 2017 at 12:45PM

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Herbalife's first-quarter financials and new guidance for 2017 put investors in a buying mood.

What happened

Herbalife (HLF -0.48%) shares are up 8.5% as of 12:30 p.m. EDT today after the company reported top- and bottom-line first-quarter results ahead of industry watchers' forecasts and boosted its financial guidance. 

So what

A boxing match between billionaire investors over its business model has put Herbalife stock on a roller-coaster ride since 2014. 

A businessman wearing boxing gloves.

Image source: Getty Images.

On the bear side, hedge fund manager Bill Ackman has repeatedly called Herbalife a pyramid scheme, and he's built up a massive short position in the stock to back up his claim. On the bull side is activist investor Carl Icahn, who maintains that Herbalife's business model is fine, and that shorts are overcommitted to the prospect of the company failing. Icahn's built up a massive long position that makes him Herbalife's biggest investor.

Today, Icahn's winning the fight.

After the market's closing bell yesterday, Herbalife reported global sales of $1.1 billion and adjusted earnings per share of $1.24. Sales were flat and EPS dipped year over year, but the figures were better than what Wall Street analysts' had predicted. 

Herbalife also boosted its outlook for the rest of the year. The company now expects full-year adjusted EPS will clock in between $4.05 and $4.45, which is up nicely from its prior guidance of $3.65 to $4.05. 

Now what

Last July, a $200 million bargain that included a restructuring of its business to better delineate who were distributors and who were customers settled questions regarding its business model with the Federal Trade Commission.

It remains to be seen if the new approach can rekindle growth at the company, but Herbalife spent time earlier this year reassuring investors that the structure is succeeding, and that a slip in sales late last year in China could be temporary. 

Clearly, Herbalife's first-quarter financials weren't a disaster, so the company's new structure doesn't appear to be a bust. However, it also doesn't appear to be translating into a growth driver, either. As for China, there's still reason for concern. Yes, volume ticked up in the Middle Kingdom during Q1, but management concedes that was due in large part to people buying ahead of a planned price increase in April. Because of that, the company's Q2 results in China could suffer. However, management says it has baked that into its full-year outlook.

Todd Campbell has no position in any stocks mentioned. His clients may have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Stocks Mentioned

Herbalife Stock Quote
$17.43 (-0.48%) $0.09

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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