Caris Gets Heat on Herbalife Downgrade Predicated on Upcoming Einhorn Speech

David Einhorn's siege on Herbalife

during the company's May 1st earnings call sent shares tanking. In the ensuing three trading sessions, HLF shed 34 percent of the previous closing price, and haven't recovered much since. The stock's movement prompted research firms covering the stock to make adjustments to their stance. In Caris & Co's case, that involved downgrading the recommendation on shares from Buy to Average. The change was predicated upon a chance of 50-percent or greater that hedge fund manager and activist David Einhorn would announce HLF as his next short play at an upcoming conference on May 16th. Analyst Linda Bolton Weiser suggested investors not buy HLF until that date. The subjective nature of the factor underlying the downgrade met criticism from Zerohedge.com. In a brief note,

likened the analysis to a coin flip that reinforced the “herding effect” through which Wall Street tends to follow “prominent hedge funders who have long since established their position and are now merely looking to unload to the stupid and the slow.” It is not the first time the firm's Herbalife coverage was met with an adverse reaction. On May 1st, the day of Einhorn questions, they reiterated their Buy rating and the price target went to $86. While it was based on anticipated continuation of earnings strength, their recommendation adjustment was met with criticism from

, which said: “In what could be the worst timing ever to raise a price target, Caris was suffering from typical Wall Street groupthink.” There's an Einstein quote that goes, “If we knew everything, they would not call it research.” Should we blame analysts when a call goes awry? The firm's track record on Herbalife is not too shabby. They initiated shares with a Buy and $75 price target when shares traded at ~$53 (Sep. 12 close of $52.34). With the market price approaching her target (Apr. 30 close of $70.32) and with sales strength sentiment prevailing - pre-Einhorn comments, when the note was most likely penned - Weiser's thesis is not necessarily unreasonable, despite being ill-timed. When you think about it, neither is her latest downgrade. Weiser is doing what any analyst should: addressing an arguably major influence on share price - as already proven - and providing a course of action, which in this case is to sit still until the muddied waters clear. Alas, Zerohedge is not alone on the Caris-bashing bandwagon. Senior CNBC Stock Commentator Herb Greenberg has also

on the matter. In the meantime, HLF sits at $47.30, up some 3.5% on the day.