Argus Downgrades Herbalife Ltd. (HLF) To Hold

Argus Downgrades Herbalife Ltd. (HLF) To Hold

Herbalife Ltd. (NYSE:HLF) has suffered another downgrade as its stock price continues to fall due to the ongoing Federal Trade Commission probe.

“The company posted strong results in 2013, and we believe that its core business remains solid. However, in view of the significant risks posed by the FTC investigation, we think that the shares have limited near-term upside and that a Hold rating is now appropriate,” said a recent note from Argus, reports Tony Owusu at TheStreet.

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TheStreet is still bullish on Herbalife Ltd. (NYSE:HLF), giving the company a Buy rating on account of its strong revenue, EPS, and net income growth, though it gives the multi-level marketing retailer a B instead of an A rating, reflecting the regulatory risk that investors face by going long.

Herbalife down more than 20% since probe

Herbalife Ltd.’s (NYSE:HLF) stock price has fallen steadily since the FTC probe was first announced, from $66.10 before the announcement to $50 today. The company had an enormous bull run in 2013, practically doubling in value. Its stock price fell in January along with the rest of the market, but growth was flat in February as there were mounting signs that regulators may investigate the company’s business practices.

FTC probe, other political pressures should make for a tough fight

If Herbalife Ltd. (NYSE:HLF) comes through the FTC probe unscathed, its stock price will almost certainly come roaring back, but it doesn’t seem like an investment for the faint of heart. The company is reportedly worried about “piggyback” investigations from state attorneys general, and Bill Ackman (who many see as the driving force behind the FTC investigation) is still intent to attack from all angles. Most recently, he sent a politely menacing letter to the Herbalife board of directors implying that they could be forced to make the company whole out of their own pockets if they go through with planned stock buybacks.

That’s not to say the company is without allies in the fight. Carl Icahn may take on a more prominent role in defending the company he is heavily invested in, and Senate candidate Brian Herr has filed an ethics complaint against Senator Edward Markey for his role in spurring the FTC probe.

Whatever the final verdict, it won’t come soon or without a fight, which explains why Argus thinks that anyone not already invested should hang tight and see how the dust settles.

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