Analyst Says Chance of Adverse Herbalife FTC Finding 'Very Unlikely'

Analysts at Pivotal Research Group said in a note that Herbalife Ltd. HLF is an "excellent investment," rebuffing Pershing Square's European Slide Deck that was released Tuesday that again called into question the company's business model. Specifically, Pivotal Research Group said that valuing Herbalife conservatively with it being "tainted" gives a price target of $75 – 75 percent higher than Tuesday's $42.75 closing price.

With regards to Pershing Square's most-recent deck, Pivotal said the hedge fund is bluffing, but it will not win in this one. The FTC, the analysts argued, "won't find anything that appears at all like ‘a level of inauthenticity'" in the actual evidence. In fact, nothing in the evidence "would lead you to believe that there was any intent to deceive customers. This, most assuredly, is not a smoking gun." The analysts went further to argue that Herbalife is "clearly" a "sensible, ethical business model."

With regards to the overall FTC finding, Pivotal said that Herbalife is at risk from an adverse finding, though it believes that is "very unlikely." That said, the analysts value Herbalife at 14.4x 2016 EPS, a discount that reflects the volatility in the name due to Pershing Square's campaign.

Additional risks to the underlying business, according to Pivotal, are that "the growth gap in 2015 is the new normal," though the analysts said they are "reasonably sure" it will not be.

Herbalife was about 1 percent lower Wednesday, but has picked some gains back up. Over the prior 52-weeks, the stock has seen a broad range of $27.60 to 69.69.