Herbalife Ltd. (NYSE:HLF) Takes Over The Headlines
In their Q1 report, Herbalife reported net sales of $1.3 billion, an increase of 12% compared to the same period last year. CEO Michael O. Johnson noted, “we continue to achieve record earnings, strong sales growth and enhanced profitability.” Despite being under investigation by the Federal Trade Commission, and dealing with Bill Ackerman’s accusations attempting to prove Herbalife is a pyramid scheme, the company still generated a cash flow from operations of $190.6 million.
Herbalife Ltd. (NYSE:HLF) An Analyst Perspective
Wedbush analyst Rommel Dionisio recommended BUY HLF on April 17 before the Q1 news announcement. Rommel and the Wedbush team noted, “They see strong recruit trends for the company’s senior-level Sales Leaders and expect high single-digit growth momentum in the number of Sales Leaders and Members.” And looking overseas, Rommel argued, “he speed at which the investigation of New Skin Enterprises, Inc. (NYSE:NUS) wrapped up in China means good things for Herbalife and for other direct selling companies in China.” With new products in their SKIN line ready to go, and additional skincare product offerings, Rommel believes these efforts “will keep customers loyal for longer compared to the average customer who just buys weight loss products.” Rommel has earned +4.9% over S&P-500 from this recommendation, helping him earn a the number 50 spot out of 30305 analysts. Rommel has also earned a +6.2% average return over S&P-500 and a 63% success rate of recommendations.
Rommel Dionisio’s Past Recommendations
Rommel has a 67% success rate recommending HLF, including one of his latest recommendations from March 2013. Rommel recommended BUY Herbalife Ltd. (NYSE:HLF), even though the company had just received a civil investigation demand from the Federal Trade Commission. Rommel argued that “channel checks indicate strong momentum in the U.S. business, driven by solid recruiting trends and a successful new product launch.” Rommel added that “SKIN offers meaningful higher gross margin than the core Formula 1 diet shake line.” This recommendation earned Rommel +4.4% over S&P-500.
However, in February 2014 Rommel did not experience the same kind of success as his most recent HLF recommendations. After HLF released positive quarterly results, Rommel maintained his BUY rating and $90 price target. Rommel noted, “HLF continues to show strong broad-based fundamental growth. The nutritional supplements company reported that in spite of the recent headlines, its core business and recruiting trends have remained strong.” However, the Bill Ackman, CEO of hedge fund Pershing Square Capital Management, headlines accusing Herbalife Ltd. (NYSE:HLF) of illegal practices had a bit more of an effect on HLF stock than Rommel expected. Rommel ended up with -22.5% over S&P-500.
Rommel has had previous success recommending another dietary supplement company, Nu Skin Enterprises (NYSE:NUS). In March of this year, Rommel maintained his BUY NUS rating, but lowered his price target from $143.00 to $105.00. Rommel still believed in the strength of the company, but due to regulatory issues in China, Rommel decided to reduce his estimates. Rommel noted, “Despite the China concerns, however, the board still approved a 15% dividend increase, to $1.38 annually.” Rommel also pointed out that, “A resolution to the Chinese government inquiry, especially a swift one, could possibly act as a positive catalyst for shares of NUS.” Rommel earned +17.0% over S&P-500.
While not directly related to weight-loss, Rommel has also seen positive returns recommending Enzymotec (ENZY), the maker of lipid-based products for nutrition. In October 2013, Rommel recommended BUY ENZY with a $21 price target, saying, “We believe Enzymotec, with its proprietary technology in lipids and expanding global distribution platform, will continue to gain market share within three fast-growing industry segments of nutritional foods & supplements.” Rommel even went as far to say, “Given such high growth prospects, we believe shares of ENZY should trade at a 20% premium to its peer group average, or a 27x 2014 P/E multiple.” Rommel ended up earning one of his highest returns of +58.6% over S&P-500!
The Herbalife controversy doesn’t look like it’s going to die-down anytime soon, but it seems as though Rommel Dionisio will be there to recommend HLF through thick or thin.
Jordan Faigen covers financial investments and the latest stock market news. She can be reached at [email protected]
