Herbalife Ltd. (NYSE:HLF) bull Tim Ramey is back in the saddle again, this time at Pivotal Research. Unsurprisingly, he’s covering the nutritional supplements company again, and he’s initiated coverage with aBuy rating. The analyst has set a $110 per share price target on Herbalife.
He also says he’s expecting the company to make a deal with the Federal Trade Commission and that it will be so good for it that shares will skyrocket as a result.
Herbalife as “alpha”
Ramey remains just as bullish on Herbalife as ever. In his report dated Oct. 20, 2014, the analysts said Herbalife Ltd. (NYSE:HLF) is the best “example of ‘alpha’ in the stock market today.” Although his 12 to 18 month price target is $110, he expects Herbalife shares to climb to between $150 and $200 in the long term.
He calls the recent pullback in Herbalife stock “déjà vu,” suggesting that the company’s miss of 2 cents per share isn’t a big deal. He notes that when activist investor Bill Ackman thought he had finally dealt the “death blow” to Herbalife, investors weren’t impressed, and shares climbed 25%. Because of this increase, he suggests that investors shouldn’t worry about a small miss of 2 cents per share.
Herbalife’s growth has slowed
Ramey does point out that the negative press surrounding Herbalife Ltd. (NYSE:HLF) has had a negative effect, particularly because the company initiated new tighter controls in response to Ackman’s criticism. The analyst thinks these factors have slowed down the company’s growth.
He adds that the lead generation practices Herbalife was blasted for were certainly a bad thing and that the multi-level marketing company did the right thing by getting rid of them. He also said Herbalife management is wise to shut down individual distributor websites because of compliance concerns, be this will cost the company at the top line.
He also points out that currency continues to be a “meaningful drag.” His third quarter estimate is $1.45 per share for earnings, which is lower than Herbalife’s guidance. Ramey said he recognizes that the company has some “short term issues to sort out.” He suggests that the quarter could be “extremely messy” as Herbalife writes off Venezuela and moves to a cash basis for accounting there.
Praise for Herbalife’s business model
The analyst continues to like Herbalife Ltd. (NYSE:HLF)’s business model, calling it “above reproach,” although he does note that the nutritional supplements company is under investigation by the FTC. He also says that regulators like to win and that Herbalife may want to allow the agency to fine it or sanction it for what it has done in the past, including overly aggressive claims about income from some distributors and the issues with lead generation.
He’s looking forward to a deal with the FTC, and he sounds like he’s pretty much expecting it. He said a deal “will likely bless the current structure while extracting some pound of flesh for sins of the past.” He’s so sure that a deal with regulators will be good for Herbalife that it will cause the company’s stock to skyrocket by 50% or possibly even more.
Originally reported by valuewalk.com
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