Canaccord Sees 'Solid' Q3 Out Of Herbalife

• Shares of Herbalife Ltd. HLF have risen steadily so far in 2015 and are up 46 percent year-to-date.
• Canaccord Genuity’s Scott Van Winkle maintained a Buy rating on the company, with a price target of $58.
• Greater-than-expected cost control is expected to boost the company’s 3Q earnings, although increasing negative currency impact may restrict growth, Winkle stated.

Changes to Herbalife’s marketing plan and a significant negative currency impact are expected to restrict growth in 3Q, analyst Scott Van Winkle said. The company is, however, expected to report in-line 3Q revenues and EPS ahead of the guidance due to greater than-forecasted expense control.

Herbalife is also expected to report “further narrowed sales and volume point declines (on a YoY basis) across most regions.” This increases the possibility of a return to volume point growth in 4Q and demonstrates a “moderating impact from the marketing plan changes early in the year,” Winkle mentioned.

The analyst expects Herbalife’s strength in China to remain intact, with the company’s daily consumption model and customer loyalty program expected to continue delivering strong growth in sales and volume points.

The estimates have been reduced to reflect foreign exchange changes with the “largest revenue cuts in Mexico (-5%), Asia Pacific (-3%) and China (-1%), partially offset by a 3% increase in EMEA given the strengthening of the Euro,” the Canaccord Genuity report stated.

Herbalife’s current stock valuation discounts a regulatory challenge, which Winkle believes “will be manageable.”