Herbalife Ltd. (HLF) Downgraded To Sell By S&P Capital

Herbalife Ltd. (NYSE:HLF) has been downgraded by equity researches at S&P Capital IQ from Neutral to Sell in their research report issued Monday. However, the analysts boosted Herbalife’s price target from $50 to $75.

Good news factored in the price

S&P Capital IQ analyst Tom Graves believes all the good news – and then some – is already baked into the recent price levels of Herbalife Ltd. (NYSE:HLF).

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In its report, the analyst indicates that he still believes that concerns about Herbalife’s business model, the sustainability of its growth and possible regulatory scrutiny will limit valuation of the model.

Recently, Wedbush analysts Rommel Dionisio and Kurt Frederick raised their estimates and price target for the nutritional supplements company, despite a new competing line of products by another company.

Webush analysts pointed out that Nu Skin Enterprises, Inc. started introducing its weight management products to its own distributors. However, the Wedbush team said Herbalife distributors so far have seen no impact from the launch of these products. The analysts report that none of the distributors they spoke with indicated there was “even a slight deceleration in their business” since the launch of the new weight management products from Nu Skin.

The Wedbush team  maintained their Outperform rating on Herbalife Ltd. (NYSE:HLF) and increased their price target from $81 to $90 per share because of the company’s “strong core business momentum” and also their “increase comfort” in the company’s fundamentals after the completion of the re-audit.

Stock repurchase will add to its EPS

Following the completion of the re-audit, Herbalife shares soared and showed no ‘material’ problems, leading analysts and investors to believe that the audit would open the door to a leveraged buyback of shares.

S&P analysts have a $75 price target on Herbalife Ltd. (NYSE:HLF)’s stock. According to Graves, that number is a premium to S&P’s historic valuation of Herbalife, as it is based on the view that a stock repurchase will happen and will add $0.35 to 2014 EPS.

In his recent letter to investors, Bill Ackman of Pershing Square Capital Management L.P. maintained his conviction that the short position of his hedge fund in Herbalife Ltd. (NYSE:HLF) offers extremely compelling and even greater asymmetric payoff than before because of substantial increase of the price of the stock.