Herbalife shares climbed today after the company released a series of letters suggesting that the Securities and Exchange Commission has wrapped up its investigation. Because regulators closed their file on the multi-level marketing company, notorious Herbalife bull Tim Ramey of Pivotal Research increased his price target from $80 to $90 per share.
Indeed, the news is possibly good for investors who are long on Herbalife, although this certainly doesn’t mean that the cacophony raised by short-sellers like Bill Ackman and his camp will cease.
SEC is satisfied with Herbalife’s filings
Herbalife released a number of documents today showing that the SEC had finished reviewing its filings. The letter stated, “We have completed our review of your filings.”
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In all there were six letters, according to Ramey, pertaining to the company’s language and disclosures in its 2013 and 2014 10-K filings. He (apparently) thinks all will be smooth sailing for Herbalife from here on out.
The analyst wrote, “The closure letter on May 27th makes it clear that the SEC is satisfied with its review of the 2013 and 2014 documents.”
One thing that isn’t in Ramey’s report is the next sentence in the letter, which states:
“We remind you that our comments or changes to disclosure in response to our comments do not foreclose the Commission from taking any action with respect to the company or the filings and the company may not asset staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.”
Of course this could be a pretty standard statement in these sorts of letters because the government likes to leave doors open on the off chance that something might change in the future. Ramey’s not worried at all about it, and he’s perhaps one of the best-informed analysts when it comes to Herbalife.
SEC reviews some issues
Ramey does note that there were five problems related to the disclosures in Herbalife’s filings. They were the permanent injunction ruling in California from 1986, questions about retail sales, the Terelli agreement, the company’s compensation plan in China and the charges against Pedro Cardozo in Brazil.
The analyst calls these issues the “hit list of the infamous antagonist” and states that Herbalife answered regulators’ questions about these issues “to SEC staff satisfaction.” Further, he wrote that he found the charges filed against Cardozo “amusing,” as they had to do with “something about 1000, a carnival and $2,300.”
Herbalife shorts expected to respond
“Go read the December 15th response for the particulars but it was, like many of the charges against Herbalife made by the short community—ridiculous upon close scrutiny,” Ramey added.
The analyst noted that short-sellers are probably going to respond to Herbalife’s release of the documents. There are other agencies investigating the multi-level marketing company, business practices and trades involving its stock. However, Ramey thinks that just like the SEC didn’t find anything interesting, the other agencies won’t either.
The analyst thinks his $90 per share price target is still too low for Herbalife because it has been consistently growing sales. He said the biggest risk is that the growth gap this year “is the new normal,” although he doesn’t think it is. Currently Herbalife is dealing with its new marketing plan and currency headwinds, which are affecting every major U.S. company.
As of this writing, shares of Herbalife were up 3.41% at $55.82 per share.