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Yesterday, Herbalife Ltd. (NYSE:HLF) released its latest survey results, broadening the scope and utilizing Nielsen this time to complete a consumer survey of over 10,500 adults. Notably this survey asked consumers about purchases of multiple brands to hide Herbalife as the sponsor. Investors liked the news and sent shares higher by 5.5 percent to $45.77 a share at the time of this writing.

Herbalife: Further results from Survey

The survey results corroborate prior research by Lieberman about the breadth of consumer purchases (7.9M adults) or 3.3% of the population (Lieberman measurement was 5% of households had purchased).The survey concluded that 87% of purchasers were not distributors, addressing the debated Vander Nat model for MLM commissions.

Scott Van Winkle, CFA of Canaccord Genuity, a long time bull is out with a new note on the study. Details below.

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Herbalife: NIELSEN SURVEY ADDS FAVORABLY TO THE DEBATE

A little over a year ago, Herbalife Ltd. (NYSE:HLF) disclosed the results of its first consumer survey utilizing Lieberman Research to measure household penetration and brand recognition. Both of the Lieberman studies pointed to 5% household penetration.

The new Nielsen research is broader in scope with over 10,500 survey respondents and was conducted to not disclose Herbalife Ltd. (NYSE:HLF) as the sponsor of the study. Thus consumers were asked about their purchases of multiple brands. The Nielsen research concluded 3.3% of adults had purchased Herbalife products during the prior three months, equating to 7.9 million US adults.

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The survey also indicated that 87% of those making an Herbalife Ltd. (NYSE:HLF) purchase were not distributors. This datapoint is important to the debate over consumer purchases vs. distributor purchases, and if this results is anywhere close to a mix of total volume, the debate over the funding of distributor commissions is easily supported by consumer sales.

Relative to the Lieberman research, the Nielsen survey was broader and the 87% consumer metric was derived by actual responses from survey participants rather than the consumer vs. distributor conclusion from Lieberman’s research, which was equated by comparing the US distributor base vs. the household penetration conclusion in the survey. While the Nielsen research doesn’t alter our opinion, as we have not harbored concerns over the legitimacy of Herbalife’s business model, the survey provides additional support to the breadth of consumer usage of Herbalife products. We expect the shares to respond positively to the survey result announcement as the heavy discount to peers narrows.

Valuation

The shares trade at just 8x next year’s projected earnings, or a 40% discount to the direct selling peer group. We maintain our $63 price target, which assumes a 12 PE on F2014E.