Herbalife Ltd. (HLF) Stock Downgraded By Zacks, Canaccord

Herbalife

Herbalife Ltd. (NYSE:HLF) has received a series of recent downgrades, most recently coming from Zacks, which moved the rating to Neutral from Outperform.

While Zacks maintains a price target of $64.20 after the downgrade, over 20% above the current share price near $54, Canaccord Genuity cut their price target from $87 to $73, moving their recommendation form a Buy to a Hold rating.

Barclays raises price target, then Federal Trade Commission announces investigation

The current downgrades come as Barclays PLC (NYSE:BCS) (LON:BARC) had raised their price target on the stock in January to $94 from $78.  Two days after Barclays raised their price target, shares fell as much as 12% in early trading today after U.S. Sen. Ed. Markey (D-Mass.) urged regulators to investigate the company as a possible pyramid scheme.

Herbalife at center of hedge fund war

The investigation into Herbalife Ltd. (NYSE:HLF) is the center of a war of activist hedge fund titans Carl Icahn, who is long the shares and has publicly argued with fellow activist fund manager Bill Ackman, who is short.  As previously reported in ValueWalk, Ackman, head of hedge fund Pershing Square Capital which has a $1 billion bet against Herbalife Ltd., has engaged in a rather public battle to talk the price of the stock down.  He has compared Herbalife to a pyramid scheme because distributors recruit distributors who recruit distributors, creating an ever-lasting commission trail.

Ackman organized lobbying campaign to influence regulators

In early March the New York Times revealed a June meeting that took place between Ackman and fellow hedge fund managers, in which Ackman talked about what he saw as the inevitable collapse of Herbalife, but this time he had a new wrinkle.  At a steakhouse in Midtown Manhattan, Ackman revealed a lobbying plan to influence government regulators to take action to bring about the downfall of Herbalife Ltd. (NYSE:HLF).  His team of lobbyists paid civil rights organizations $130,000 to help him collect names of people who were “victimized” by Herbalife Ltd. (NYSE:HLF) so he could then use these letters to lobby Congressman and regulators.

Ackman has recently attacked Herbalife’s China operations. Icahn’s response was to file a lawsuit against Ackman — as the stock price and company management continue to operate amidst the hedge fund battle.

Beats earnings

Last month Herbalife Ltd. (NYSE:HLF) released its earnings report, delivering $1.29 per share for the quarter, beating analysts’ estimates, which had estimated an average of $1.17 per share.  The estimate for the current fiscal year is $6.04 earnings per share.

Herbalife Ltd. (NYSE:HLF) is a network marketing company that sells nutritional supplements, energy, weight management, fitness products and personal care products through a sales network where distributors recruit other distributors, which is the subject of charges that the company is a “pyramid scheme.”

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About the Author

Mark Melin
Mark Melin is an alternative investment practitioner whose specialty is recognizing a trading program’s strategy and mapping it to a market environment and performance driver. He provides analysis of managed futures investment performance and commentary regarding related managed futures market environment. A portfolio and industry consultant, he was an adjunct instructor in managed futures at Northwestern University / Chicago and has written or edited three books, including High Performance Managed Futures (Wiley 2010) and The Chicago Board of Trade’s Handbook of Futures and Options (McGraw-Hill 2008). Mark was director of the managed futures division at Alaron Trading until they were acquired by Peregrine Financial Group in 2009, where he was a registered associated person (National Futures Association NFA ID#: 0348336). Mark has also worked as a Commodity Trading Advisor himself, trading a short volatility options portfolio across the yield curve, and was an independent consultant to various broker dealers and futures exchanges, including OneChicago, the single stock futures exchange, and the Chicago Board of Trade. He is also Editor, Opalesque Futures Intelligence and Editor, Opalesque Futures Strategies. - Contact: Mmelin(at)valuewalk.com

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