Herbalife Ltd. Soars On FTC Settlement News, Then Others Say Report Is False

Herbalife Ltd. (NYSE:HLF) was said to have reached an agreement with the Federal Trade Commission in an investigation into allegations that it’s a pyramid scheme, but within minutes of that report, another report came in claiming that it is false. A source close to the company tells ValueWalk that the second report is the correct one.

The company’s stock surged after the first report but pulled back slightly after the second, although it still remained in the green. As of this writing, Herbalife shares are up 4.93% at $62.35.

HLF Herbalife Ltd. HLF

Herbalife said to have reached agreement

The first report came from Josh Kosman with the New York Post, who cited unnamed sources as saying that the embattled company had reached an agreement with the FTC to settle the long-running investment. He said a deal could be announced as soon as tomorrow but that the agreement wasn’t final and might still fall through. He also said the terms of the deal and “what could be a sizeable financial penalty” were unknown, although he claimed the company “agreed to pay a hefty fine.”

Earlier this month, Herbalife did say that it was nearing a settlement with the agency. The FTC’s website states that it will meet tomorrow on some sort of law enforcement topic, but it doesn’t say exactly what. Kosman’s sources claim that Herbalife will be the topic of that meeting.

HLF – Skepticism about the report

Fox Business’ Charles Gasparino tweeted within minutes of the New York Post’s report that his source says the news is “not true” and that “nothing has changed still in advanced negotiations [sic].” CNBC also reported that its own source said the Post’s report should be “taken with some skepticism” and that although there could be a settlement at some point, one shouldn’t be expected Tuesday.

It should be noted that the Post originally said the FTC is meeting today, but Kosman has corrected his report to say that the meeting is tomorrow since CNBC published its article referencing Tuesday.

UPDATE: A source close to Herbalife tells ValueWalk that Fox Business and CNBC have the story right.

HLF – No conflict?

Pivotal Research analyst Tim Ramey tells ValueWalk that there’s not actually a conflict between the Post’s report and what Herbalife said earlier this month about being close to a settlement. He still believes that a deal has essentially been reached but that the FTC must vote on it and maintains his Buy rating and $90 per share price target. Management said at that time that the fine could be around $200 million. Ramey

He noted that the Post’s source said that the agreement doesn’t all for any major changes to the business model and warns that he still sees “significant risk” to the FTC talks ending in litigation. However, he still likes Herbalife shares.

“If one takes the Hypothetical that Herbalife shares would go to $90 on a settlement and $40 on litigation, we think HLF is a BUY today up to and including a 40% risk of litigation,” he said in an email to clients that he shared with ValueWalk. “Presumably the statements in Herbalife’s 10-Q preclude the risk being above 20% – in the assessment of HLF Management.”

Herbalife did not respond to a request for comment.