I’ll Take a Herbalife

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Stock (Symbol) Stock Price

Herbalife (HLF)

$55

Data is as of Expected to Report Sector

August 3, 2010

Nov 1

Food & Beverage

Sharek’s Take
David SharekHerbalife is breaking out today after a simply awesome quarter. Herbalife makes nutritional supplements that are sold around the world. HLF is considered to be a 14% grower but has now morphed into explosive-growth on the backs of its Independent Distributor model. Now you too can sell nutritional shakes right from a store front — or from your own home.I’ve been tracking HLF for quite some time, and have devoted a lot of time into researching the company’s business model. HLF’s been on my radar and today’s stellar earnings news forced the stock up 12% to a new all-time high and breaking it out of its base.
 
When I’m finished writing this article I will Herbalife stock to my Growth Portfolio. I will also purchase HFL for the Aggressive Growth Portfolio, removing Amazon.com (AMZN). AMZN just has estimates lowered after earnings came out.
One-Year Chart
I’ve been tracking HLF for quite some time, and have devoted a lot of time into researching the company’s business model. HLF’s been on my radar and today’s stellar earnings news forced the stock up 12% to a new all-time high and breaking it out of its base.
Earnings Table
Herbalife came through with profit growth of 69% last quarter. Sixty percent plus growth catapults HLF into the top tier of growth stocks. In the prior two quarters HLF put out 40% growth, but those figures were compared against recessionary quarters. The company had record revenues last qtr, up 21% from a year ago.
 
Herbalife pounded estimates. The company was expected to make $0.93 and did $1.32 instead. This is the biggest beat-down of the last four quarters, and makes me think business is spectacular.
 
HLF increased 2010 Annual Profit Estimates when it reported results last night — by a whopping 50 cents. The analysts had estimated a profit of $3.90 and management upped that to $4,40. 
  
I can’t get a read on what HLF will make in coming quarters since the whole model has to be re-written now that the 69% growth was delivered. Management did state it could make $1.03 next quarter (estimates were for $0.98).
Fair Value
Year Profits x P/E = Price Upside/Downside
Today $4.40 x 12 = $55  
2010 Fair Value 4.40 x 20 = 88 60%
2011 Fair Value 4.92 x 20 = 98 78%

HLF is worth 20 times earnings — that makes it extremely undervalued with a current P/E of only 12. Herbalife could double in the next year.

Ten-Year Chart
The ten-year chart shows HLF went down in 2008 when the recession hit. Nutritional stocks do well when the economy is doing well. With the new earnings news profits should be up 34% this year. That should be enough to take the P/E from 12 to 20. Notice HLF just cleared long-term resistance of $50 — that’s really bullish.
Power Ranking Bottom Line
Growth Portfolio

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I think a lot of analysts/money managers need to get onboard with this stock. That should force shares higher. Some managers will be forced to own HLF as 69% profit growth combined with a 12 P/E falls in the buy zone of many computer models. Herbalife’s Independent Distributor model is a fantastic catalyst for this company. Now Herbalife products will be easier to purchase and consume. Herbalife — coming to a neighborhood near you.
 
HFL is the 8th best stock in the 18 stock Growth Portfolio. Since momentum is strong and upside is solid, Herbalife is the 3rd best stock in the 8 stock Aggressive Growth Portfolio.
Aggressive Growth Portfolio

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David Sharek David Sharek is stock portfolio manager and CEO of DavidSharek.com. David believes a company's profits ultimately drive the price of its stock. His book The School of Hard Stocks can be found on Amazon.com.