"[W]e remain Neutral on the name given (1) valuation at >14x 2016E EPS (10-16x historical) and (2) the potential for choppiness/hiccups as it implements new distributor processes/regulations post-FTC settlement," analyst Michael Swartz wrote in a note.
Driven by strong volumes, Herbalife reported better-than-expected second-quarter adj. EPS of $1.29 (vs. SunTrust/Street estimates of $1.17/$1.21) on revenue of $1.2 billion, in line with both SunTrust and the Street.
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Post-FTC settlement, the company will begin rolling out new tools to distributors in order to enable better tracking of retail consumption/sales. Herbalife expects one-time implementation costs to run $35 million–$50 million with on-going investments of $5 million–$10 million annually.
Herbalife also raised its 2016 outlook including EPS of $4.50–$4.80 from $4.40–$4.75 and volume growth of 4.5–7.5 percent (vs. +2–5 percent). Total revenue growth was maintained at 1.5–4.5 percent due to currency headwinds.
Swartz also increased his 2016/2017 EPS estimates to $4.75 and $5.35, respectively from $4.68 and $5.25.
The analyst maintained his $66 price target, while the stock is currently up 0.54 percent to $67.40.
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