Carl Icahn and Bill Ackman recently battled in one of the greatest phone interviews of all time. The call was hosted on CNBC and had to do with Herbalife Ltd. (NYSE:HLF). Bill Ackman initiated a short position in the company and made it known to the public, sending shares tumbling. Carl Icahn did not agree with how Ackman was handling the situation, and things quickly got personal. The two went at it for an extended period of time, and the conflict became known as the "Battle of the Billionaires." The call was posted across every financial website you can think of, making the Herbalife situation one of the most talked about issues on the market. Carl Icahn then came out and announced he had bought over 14 million shares of the company. But who has it right? Rather than taking the two opinions and comparing, let's take a look into the financials and see if the company is fundamentally strong or if it is doomed to head lower.
Herbalife Ltd. (NYSE:HLF) has been selling weight management and nutritional supplements since 1980. Their products include protein shakes and snacks, vitamins, dietary supplements, energy drinks, fitness drinks, skin and hair care products. Herbalife says that using their products and exercising will help maintain good health throughout one's life. They also offer fitness tips and nutrition blogs on their website.
How the Products are Sold
Herbalife sells its products using independent distributors. Basically, anyone can sign up to become a distributor as a full time career or as a side job. They also offer additional income if you refer friends, family, or anyone else to become a distributor. They say it is a proven business model with generous compensation plans and impressive training. There are currently over 2.5 million independent distributors in more than 80 countries.
Herbalife has had strong earnings over the last 2 years and is projected to report record numbers over the next two years. The chart below shows this growth.
Herbalife's earnings are expected to grow 15.6% in 2013, 15.8% in 2014, and 13.5% in 2015. This is consistent growth and is a positive for the company and its stock. These are current estimates, so they may even be raised from here.
As of Feb. 25 before the open, Herbalife is trading at $36.79. At this price, the stock is trading at just 9.08 times earnings. This is very cheap compared to the industry average of 22.31. Using forward earnings, Herbalife is trading at 7.9 times 2013 earnings, 6.8 times 2014, and 6 times 2015. All of these multiples show that the stock is incredibly cheap.
Additionally, Herbalife currently pays out an annual $1.20 dividend. This represents a yield of 3.26%. This is a huge positive for the stock, because even if it were to trade sideways for a few months it pays you to wait for a run higher.