Herbalife Ltd. (NYSE:HLF) is not willing to commit to buyback until its re-audit gets completed, nor is it willing to leverage up to fund a buyback, believe Barclays analysts.

Herbalife

Meredith Adler and Sean Kras of Barclays equity research suggest that Herbalife management needs to look at the economics of a buyback before committing to anything.

Herbalife’s re-audit

A fresh audit from PricewaterhouseCoopers was initiated in May after KPMG indicated in April that its independence had been eroded and hence withdrew its audit reports for 2010, 2011 and 2012.

Pershing Square founder Bill Ackman in his third quarter letter to investors claimed his company identified a substantial number of serious issues with Herbalife Ltd’s accounting, disclosure, and tax policies, which Pershing brought to the attention of PWC and the SEC in a series of three letters delivered recently.

In July, Herbalife Ltd. (NYSE:HLF) indicated that it would resume its plans to repurchase at least $50 million of stock per quarter after it receives a clean bill of health on the new audits.

Recently, Herbalife Chief Financial Officer John DeSimone said he expects the re-audit to be finished by the end of the current calendar year. He said when it’s finished, they will then evaluate opportunities for a share repurchase.

However, as Barclays’ analysts point out during Tuesday’s conference call, Herbalife management was not willing to provide any plans for repurchasing stock next year, as they prefer to wait for the re-audit to be completed.

Herbalife posts strong results

Meredith Adler and Sean Kras of Barclays equity research observe that Herbalife continues to post strong financial results, with the 3Q13 EPS beating ~25% vs consensus. However, its investors’ seem to be paying more attention to other factors such as buyback.

Barclays’ analysts also point out Herbalife Ltd. (NYSE:HLF) generates a fair amount of FCF and will ultimately need to figure out what to do with it. Hence, the analysts feel Herbalife’s stock remains attractively valued.

With the third quarter’s strong performance, Barclays’ analysts revised upwards Herbalife Ltd. (NYSE:HLF)’s FY13 EPS to $5.26, besides raising their FY14 EPS by $0.15 to $5.65.

The following table depicts the old and new estimates from Barclays’ analysts:

HLF's estimates

However, Barclays’ analysts caution a $0.14 headwind from foreign currency translation, largely due to the Brazilian Real and the Mexico Peso, and excluding Venezuela.

The analysts also point out the stability in established markets suggests Herbalife still has great potential for growth in newer markets.

Meredith Adler and Sean Kras of Barclays’ equity research maintained their overweight rating on Herbalife Ltd. (NYSE:HLF) and raised their price target to $78, denoting 13.8x their revised FY14EPS forecast of $5.65.