What You Need to Know Going Into Herbalife Ltd. (HLF)’s Earnings

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Herbalife Ltd. (HLF)The Herbalife Ltd. (NYSE:HLF) media coverage may have quieted down a bit in the last week or two, but the battle rages on. We found out that Carl Icahn, in fact, does have a stake in the company while Bill Ackman has not covered a single share of his billion-dollar short. We also know that Dan Loeb — who was the original super bull after Ackman’s December presentation — has trimmed his position in the company. Of course, the question still remains whether Herbalife can be deemed a fraud or not. Let’s take a look at recent developments surrounding the too-hot-for-tv debacle to try and figure out where the company is headed into today’s earnings report.

Previously on The Herbal-Life
While CNBC took its focus away from the Ackman versus Icahn blowout to focus on hopefully more substantial news, the story continued to develop. By a mixture of open market share purchases and call options, Carl Icahn amassed a 13% long position in Herbalife, confirming the suspicions of many after the corporate raider got into an extremely heated debate on live television with Bill Ackman. The position is reportedly very well built –with a combination of American-style calls and European puts that allow Icahn to exit whenever he pleases while also putting a tremendous squeeze on Ackman’s billion-dollar short. To me, it reeks of personal vendetta.

On the less nefarious end of things, Daniel Loeb’s Third Point Capital has been unloading its own shares of Herbalife after initially taking a stake right after Ackman’s December presentation at the Sohn Conference. Ackman had said at the time he believes Dan is a smart and talented investor and he was trading Herbalife — not investing. The fact that Loeb has spent less than two months in the position confirms this, dead on. Third Point still holds a position in the company, sources say, but we do not know the exact amount.

In late January, Herbalife announced that its fourth-quarter numbers came in above expectations and that the company was moving forward with a share buyback. Wall Street is expecting 19% sales growth and EPS growth from $0.86 in the prior year to $1.03 in 2012. The company reports its earnings today.

What’s an investor to do?
As most other Fool writers covering the story have said, Herbalife stock should be on no one’s shopping list. Not necessarily because it could be a pyramid scheme or not, but because there is way too much going on around the stock for the market to behave anywhere close to reasonably — something it already has tremendous trouble in achieving even in much calmer times. Still, it is important to keep abreast of the situation, as any further clarity could create an opportunity — long or short.

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