A recent Bloomberg Businessweek article really laid out the inner-workings of Herbalife Ltd. (NYSE:HLF). Even I had started to wonder if Bill Ackman was right and the company was days away from an FTC investigation. By reading the article and understanding more about the company, I have come to realize that even though some may question its multi-level marketing business and its distributors, underneath is a nutrition company that makes great products. Herbalife is a solid company that competes with Weight Watchers International, Inc. (NYSE:WTW), NutriSystem Inc. (NASDAQ:NTRI), and GNC Holdings Inc (NYSE:GNC).
Foolish perspective
It’s important to keep in mind that Herbalife Ltd. (NYSE:HLF) has been in business since 1980. Instead of selling its weight-loss products in traditional stores, Herbalife founder Mark Hughes opted for a direct-selling, multi-level marketing approach. This approach attracted thousands of distributors who sold the product door-to-door and through word-of-mouth. The company’s original slogan was “Lose Weight Now, Ask Me How.”
For anyone questioning the company’s viability, it’s important to keep a few points in check.
- Herbalife originally went public in 1986 on the NASDAQ and passed all regulatory scrutiny.
- The company went private in 2002 when J.H. Whitney & Company and Golden Gate Capital acquired it for $685 million.
- In 2003, Michael Johnson became CEO of Herbalife Ltd. (NYSE:HLF) after a 17-year career at Walt Disney, including being President of Walt Disney International.
- In 2004, Herbalife went public again. This time on the NYSE.
Carl Icahn enters the fray
Shortly after hedge fund manager Bill Ackman went on his PR blitz attacking Herbalife, news emerged that Billionaire Carl Icahn had purchased a 13% stake in Herbalife Ltd. (NYSE:HLF). Icahn began buying his stock in the mid-$30s and now has a tidy profit with the stock just below $48.Carl Icahn stated that:
Herbalife is a legitimate business model with favorable long-term opportunities for growth.
The emergence of Carl Icahn was welcome news for Herbalife management. They agreed to give Icahn two seats on the company’s board. Icahn has increased his stake in Herbalife and now owns 16% of the company.
Change in focus
CEO Michael Johnson has been able to remake the company in his image. He’s a self-styled nutrition devotee who was known for drinking shakes at Walt Disney. He has focused Herbalife Ltd. (NYSE:HLF) and its distributors more on the product than on getting rich. The focus is now on losing weight and getting healthy. Nutrition clubs are being developed within the distribution channel to encourage users to lose weight and serve as a support group. The result has been more and more people using Herbalife products on a daily basis.
Competitors
| Herbalife | Weight Watchers | GNC | Nutrisystem | |
| Market Cap | $4.91B | $2.49B | $4.49B | $246.51M |
| Revenue | $4.23B | $1.81B | $2.47B | $373.74M |
| EBITDA | $753.02M | $535.14M | $490.97M | $18.91M |
| Net Income | $487.88M | $251.57M | $248.98M | $1.04M |
| P/E | 11.15 | 9.98 | 18.85 | 232.89 |
| PEG Ratio | 0.67 | 1.89 | 0.86 | 2.19 |
Weight Watchers International, Inc. (NYSE:WTW) is know globally for its weight-loss products and program. The company takes a scientific approach to help participants lose weight by forming healthy habits, eating smarter, getting exercise, and providing emotional support. Weight Watchers International, Inc. (NYSE:WTW) is in a great position as an increasing portion of the American population is considered obese.
Herbalife Ltd. (NYSE:HLF) has been following the Weight Watchers International, Inc. (NYSE:WTW) game plan in terms of support infrastructure. Weight Watchers International, Inc. (NYSE:WTW) was one of the first companies to realize that losing weight is as much an emotional struggle along with a physical one. Weight Watchers International, Inc. (NYSE:WTW) conducts more than 45,000 weekly meetings led by over 12,000 leaders to help members lose weight.
GNC Holdings Inc (NYSE:GNC) is the world’s leading supplements retailer. The company has approximately 8,100 locations in 54 countries. The company’s products include vitamins, minerals, herbal supplements, sports nutrition products, diet products, and other wellness products.
