Market Overview

Earnings Preview: Herbalife

On Monday after the closing bell, global network marketing company Herbalife (NYSE: HLF) will be releasing its quarterly earnings results. Historically, Herbalife has been a very strong stock, rising nearly 137 percent over the last 5 years and more than 588 percent over the last 10 years. In the Spring, however, the stock plunged from all-time high levels after hedge fund manager David Einhorn asked some poignant questions on an Herbalife conference call.

Many market participants felt that the only reason why Einhorn would be on the conference call was because he was shorting the stock. Previously, the hedge fund manager had made some very prescient short calls in stocks such as Lehman Brothers and Green Mountain Coffee Roasters (NASDAQ: GMCR) and many investors decided to sell the stock on the mere possibility that Einhorn was shorting it.

While there has been no substantiation of the rumors that Einhorn's hedge fund, Greenlight Capital, is in fact shorting Herbalife, the stock has not recovered from the sell-off. Herbalife's business is essentially a very successful version of a multi-level marketing operation. These types of businesses do not have the best reputation, but Herbalife has manged to make it work. After all, the company has been traded on the New York Stock Exchange since 2004 and sports a market cap north of $5.6 billion.

The company sells weight management, nutritional supplements, energy, sports and fitness products and personal care products through a network of approximately 2.7 million independent distributors. Over the years, Herbalife's business has been driven by strong international growth, and shareholders will be looking for more top-line growth when the company releases its quarterly results on Monday.

Heading into the results, Wall Street analysts have consensus earnings per share estimates of $1.01. The low estimate is $1.00 with a high estimate of $1.02. This compares to the $0.87 that Herbalife reported in EPS in the year ago quarter. This represents EPS growth of a little more than 16 percent.

The average revenue estimate for the quarter is $996.96 million. The low estimate is $989.80 million with a high estimate of $1.00 billion. In the year ago quarter, the company reported revenues of $895.22 million. This represents projected year over year sales growth at Herbalife of 11.40 percent.

Over the last 3 months, EPS estimates for the company have risen by 2 pennies from $0.96. During this time, the stock has lost a little less than 6 percent. Year-to-date, the stock has shed a little more than 2 percent as the shares rose at the beginning of the year prior to the big plunge that occurred in the Spring.

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