Herbalife Ltd. (NYSE:HLF) reported its financial results for second-quarter after the closing bell on Wednesday. The global nutrition company posted earnings of $1.24 per share on a revenue of $1.2 billion for the quarter. During the same period in 2014, the company posted a revenue of $1.31 billion with EPS of $1.55. Thomson Reuters consensus expectation stood at $1.11 EPS on a revenue of $1.14 billion. Despite the earnings beat the year-over-year revenues and earnings dropped significantly, due to the stronger dollar headwind. Herbalife Ltd. (NYSE:HLF)’s overall revenues in North America, Mexico and South and Central America declined by 8.2%, 13.1%, and 34.3% over the year respectively. In addition, sales in Asia Pacific, China and Europe/Middle East/Africa decreased year-over-year by 21.9%, 39.2% and 14.7% respectively. Due to this earnings beat the stock had gained around 9% in the pre-market and is currently trading at around 17% up from the closing price on Wednesday.
“The second quarter continued the improving trends we saw in the previous quarter in terms of sales volumes and key sales leader metrics, and we believe we will see these positive trends continue through the second half of the year. Our Members around the world are more excited and engaged than ever as we invest in innovative new products and enhance our marketing and infrastructure to support their businesses and ensure we are putting customers first in all we do. We continue to see what we believe is the positive impact of the changes we implemented and remain confident that we are creating an even stronger platform for sustainable growth that will deliver long-term value for our shareholders,” Herbalife CEO was quoted as saying in a statement
Herbalife Ltd. (NYSE:HLF) also updated its full year guidance and said it expects earnings to be around $4.50 – $4.70 per share, up from $4.30 – $4.60 per share before. This full-year guidance includes currency headwind impact of around $1.40 per share, but the company accounted for a currency headwind impact of $1.26 per share before. However, the company expects sales to decline for 2015 by around 6.5% to 9.5%. Earlier today, research analyst at Canaccord Genuity raised the price target on the stock to $58 from $53 and reiterated a ‘Buy’ rating on the stock. In addition, on Tuesday, Pivotal Research reiterated ‘Buy’ rating with a price target of $90, while Barclays reaffirmed its ‘Overweight’ rating on the stock and set a $64 price target. With this in mind, let’s see how hedge funds look at Herbalife.
Heading into the second quarter, a total of 35 of the hedge funds tracked by Insider Monkey held long positions in Herbalife Ltd. (NYSE:HLF) with an aggregate capital investment valued at $1.57 billion. However, there were 37 hedge funds holding $1.34 billion worth of stock at the end of 2014. During the January – March period the stock had appreciated around 13% of its value, implying that there was some capital inflow into Herbalife during the same period.
Why do we pay attention to hedge fund sentiment. Most investors ignore hedge funds’ moves because as a group their average net returns trailed the market since 2008 by a large margin. Unfortunately, most investors don’t realize that hedge funds are hedged and they also charge an arm and a leg, so they are likely to underperform the market in a bull market. We ignore their short positions and by imitating hedge funds’ stock picks independently, we don’t have to pay them a dime. Our research has shown that hedge funds’ long stock picks generate strong risk adjusted returns. For instance the 15 most popular small-cap stocks outperformed the S&P 500 Index by an average of 95 basis points per month in our back-tests spanning the 1999-2012 period. We have been tracking the performance of these stocks in real-time since the end of August 2012. After all, things change and we need to verify that back-test results aren’t just a statistical fluke. We weren’t proven wrong. These 15 stocks managed to return more than 123% over the last 35 months and outperformed the S&P 500 Index by 65 percentage points (see more details here).
Keeping this in mind, we’re going to review the new action encompassing Herbalife Ltd. (NYSE:HLF).
How are hedge funds trading Herbalife Ltd. (NYSE:HLF)?
Among the hedge funds tracked by Insider Monkey, Carl Icahn’s Icahn Capital LP held the largest position in Herbalife with around 17 million shares valued at $726.9 million at the end of the first quarter. Followed by Icahn Capital LP is George Soros’ Soros Fund Management with around 3.5 million shares worth $147.4 million. Both investors left their stakes unchanged during the first three months of 2015. On the other hand, William Duhamel’s Route One Investment Company increased its holding by around 146% to 1.8 million shares. Some other hedge funds with similar optimism includes Steven Richman’s East Side Capital (RR Partners) and Joe Huber’s Huber Capital Management.
On the opposide side stands Benjamin A. Smith’s Laurion Capital Management, which sold all its 2.8 million shares during the January – March period.
To sum up, strong second quarter earnings, coupled with an upgraded full-year guidance, makes this stock attractive. Many analysts also turned bullish on Herbalife by setting higher price targets. In addition, the company enjoys a bullish sentiment from hedge funds. Taking all of this into account, we consider that at the moment Herbalife represents an attractive investment opportunity.
Disclosure: None
