After 40% Jump, Herbalife Is Heading Higher, Says Citi Analyst

Herbalife Ltd. HLF is up more than 40 percent in 2018, and investors can expect even more gains ahead, according to Citi.

The Analyst

Citi's Beth Kite upgraded Herbalife's stock rating from Neutral to Buy with a price target boosted from $85 to $114.

The Thesis

Multiple positive developments have taken place since January that justify a bullish stance on Herbalife's stock, Kite said in a Monday upgrade note:

• Capital allocation announcements.
• Multiple executive changes.
• Notable hedge fund manager Bill Ackman closing his multiyear short stance on the company.

Numerous catalysts exist for appreciation in Herbalife's stock, the analyst said. At the most basic level, the company is executing a tender offer and refinancing its debt to both reinvest in the business and buy back its stock in 2019, Kite said. Elsewhere, the company's management team can shift from defense to offense with a new sales strategy, particularly in the expanding Chinese market.

From a fundamental point of view, Herbalife's stock should trade at a 10-percent premium to the overall market, as its headline risk is lower, Kite said. 

"We argue HLF should trade akin to companies with similar sales growth, sales exposure, margin and FCF profiles, like Nu Skin Enterprises, Inc. NUS, which we value at a 15-percent premium." 

Price Action

Shares of Herbalife were trading at record highs Tuesday and were up 2.45 percent at $96.60 at the time of publication. 

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Photo courtesy of Herbalife.