Herbalife Ltd. (HLF) To See Continued Double-Digit Growth: Canaccord


Herbalife Ltd. (NYSE:HLF) continues to be a battleground stock for investors and analysts, as some see continued growth in the company’s future and others see nothing but a pyramid scheme. The company announced its share buyback plan and priced its convertible notes, and Canaccord Genuity analysts have maintained their Buy rating and $87 per share price target on the stock.

How Herbalife’s plan will affect growth

Scott Van Winkle and Mark Sigal think Herbalife Ltd. (NYSE:HLF)’s “efficient business model” and the continual global distribution of its products will keep pushing double-digit growth in both earnings and revenue. They note that Herbalife has priced its convertible notes and capped the call transaction, essentially “buying up the conversion price to $120.” They believe that the 2% coupon on Herbalife’s convertible notes is the driver of that financing option since straight interest isn’t deductible for the company because it is incorporated in the Cayman Islands.

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The company also said it was buying 9.9 million shares back, which immediately removes them from its diluted share count. The Canaccord Genuity team sees this share buyback as being 7% accretive to their fiscal 2014 earnings per share estimate. However, they haven’t changed their estimates just yet and believe Herbalife Ltd. (NYSE:HLF) will continue its share buyback activity.

Herbalife remains discounted to peers

Currently Herbalife Ltd. (NYSE:HLF) is trading at about 12 times Canaccord Genuity’s 2014 earnings per share estimate and 7.6 ties EBITDA. That puts the company’s shares at a discount to its peer group and also its historical average forward PE.

Their price target of $87 per share implies 14 times their 2015 earnings per share estimate, which is in the $6.20 range. Their 2015 estimate assumes 10% growth in earnings per share, which they belive is actually modest, compared to the trailing three-year compound annual growth rate of more than 25%. It also assumes that there’s no more “meaningful incremental buyback activity.”