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Herbalife Earnings: An Early Look

By Dan Caplinger – Feb 15, 2013 at 7:39PM

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Let's look forward to this company's next earnings report.

Earnings season is in full swing, with huge numbers of companies having already given their latest numbers to investors, and Herbalife (HLF -3.45%) 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

$1.03

Change From Year-Ago EPS

20%

Revenue Estimate

$1.05 billion

Change From Year-Ago Revenue

18.8%

Earnings Beats in Past 4 Quarters

4

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 (MED -1.16%) and personal-care companies Usana (USNA -0.63%) and Nu Skin (NUS 0.28%) 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.

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

Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool has options positions on Herbalife. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Herbalife Stock Quote
Herbalife
HLF
$20.69 (-3.45%) $0.74
USANA Health Sciences Stock Quote
USANA Health Sciences
USNA
$56.70 (-0.63%) $0.36
Nu Skin Enterprises Stock Quote
Nu Skin Enterprises
NUS
$36.15 (0.28%) $0.10
Medifast Stock Quote
Medifast
MED
$114.68 (-1.16%) $-1.34

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

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