Herbalife Earnings Preview 2Q

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Analysts at Barclays Equity Research believe that Herbalife Ltd. (NYSE:HLF) will continue to report strong financial performance for the second quarter of the current fiscal year. The global nutrition company is scheduled to report its quarterly earnings results on Monday, July 29.

Herbalife Earnings Preview 2Q

Barclays Equity Research analysts Brian Wang and Meredith Adler projected that Herbalife Ltd. (NYSE:HLF) will post $1.18 earnings per share, in line with the consensus EPS estimate of Wall Street analysts at around $1.14 to $1.18.  The analysts estimated that the nutrition company’s total sales will grow by 11.7% driven by an 8.5% increase in volume points and a 0.5% benefits from foreign currency exchange.

According to Wang and Adler, their primary focus during the conference call include updates on any timeline regarding Herbalife’s re-audited financials from its new auditor, differences in trends given the changes in its business model of the negative publicity from Mr. Bill Ackman, and additional steps taken or plans to improve transparency. The analysts also want to hear updates about the survey conducted by Nielsen and the Lieberman Research Group, the impact of foreign exchange rates on earnings, and how aggressive the company is in repurchasing its stock.

Herbalife controversy will undoubtedly continue

The analysts believe that the controversy surrounding the business model of Herbalife Ltd. (NYSE:HLF) will continue. However, Wang and Adler speculated that Ackman’s allegations that the company is a pyramid scheme will eventually fall apart as the company continues to report strong earnings, which shows that its business operations is not slowing down.

Wang and Adler also noted that government regulators are not taking any action against Herbalife Ltd. (NYSE:HLF) regarding the allegations despite the requests of consumer activist groups.

The analysts wrote, “We expect the company to report more strong results in 2Q13 and to at least reiterate its FY13 guidance, although a strengthening U.S. dollar compared to the end of 1Q13 will be a headwind.”

Herbalife Ltd. (NYSE:HLF) expected to achieve an EPS of $4.60 to $4.80 for the full fiscal 2013. The company projected a sales growth of 13% to 15% and tax rate at 25.5% to 27.5%.

Herbalife auditors confirm positive actions

Wang and Adler also expected that Pricewaterhouse Coopers (PWC), the new auditor for the company, will be able audit its previous financial results within the next several quarters. They also believe that the management of Herbalife Ltd. (NYSE:HLF) is taking proper actions to regain investor’s confidence, including increasing transparency of its business model, providing third-party survey data, changing or eliminating policies that could be perceived negatively, and continuing to report strong results.

The analysts recommended an Overweight rating for shares of Herbalife Ltd. (NYSE:HLF) with a price target of $60. The company’s stock price is trading around $57.46 per share, down by more than 1% on Thursday morning trading in New York.

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