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Herbalife Up 11% Post Self-Tender Offer Preliminary Results

Zacks

Herbalife Ltd HLF recently announced the preliminary results of its self-tender offer, which was initiated on Aug 21, 2017 and expired on Oct 5. The Depositary for the tender offer, who carried out the preliminary count of the shares tendered, stated that the company has been able to acquire 6.7 million of its stock, at a price ranging between $60 and $68 in addition to a contingent value right (CVR) agreement against each share. Till now, Herbalife has spent $457.8 million to buy back close to 7.2% of its outstanding stock.

Per the norms of the offer, the company, by way of a “modified Dutch auction”, had stated its intentions to buy back $600 million worth common stock in cash at a price of not less than $60 or exceeding $68. Also against each of its tendered shares, shareholders will be provided with a non-transferable contractual CVR. The CVR allows shareholders to receive a contingent payment in cash, in case Herbalife gets acquired through a private transaction in the forthcoming two years. Such an initiative indicates commitment toward enhancing shareholder value.

The preliminary count of this self-tender offer exhibits a general unwillingness amongst investors to sell the stock under the self-tender offer. As a result of the enhanced investor confidence, shares of the company have surged more than 11% on Oct 6, closing at $75.25, post the announcement of the preliminary count results. During the trading session on the same day, this Zacks Rank #3 (Hold) company also hit a new 52-week high of $75.75. Shares of the company have rallied 27.6% in the past 6 months, outperforming the industry’s decline of 6.9%.


Bill Ackman Stands Low

The improving market sentiments toward Herbalife is a big blow for Bill Ackman, who had accused the company of resorting to a pyramid scheme in December 2012 and urged the Federal Trade Commission (FTC) to investigate the company’s operations. Herbalife resolved the probe with the FTC and paid $200 million in fines and settlements without being accused of operating as a pyramid scheme. Ackman’s claims also suffered a backlash when talks of the company to become privately acquired started making rounds alongside its self-tender offer.

Strong Earnings History & Other Factors

We note that the company’s earnings have outpaced the Zacks Consensus Estimate for 11 straight quarters now, with an average beat of 25.1% in the trailing four quarters. The company recently raised its earnings guidance for the upcoming third-quarter from 65-85 cents to 80-90 cents per share. (Read More: Will Herbalife's Upbeat Earnings View Help Lift the Stock?)

We believe that the improved earnings outlook has also encouraged investors to expect further growth from the company and thereby refrain from participating in Herbalife’s self tender offer.

Further, Herbalife has also been progressing well with cost-saving measures and technology innovations to enhance its growth prospects. The company currently carries a VGM Score of A, indicating its inherent growth potency.

Do Retail Stocks Grab Your Attention? Check These

Investors may also consider other stocks from the same sector such as Burlington Stores Inc BURL, Five Below Inc FIVE and The Children's Place Inc PLCE, all carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.

Burlington Stores delivered an average positive earnings surprise of 17.7% in the trailing four quarters. It has a long-term earnings growth rate of 16.2%.

Five Below pulled off an average positive earnings surprise of 8.7% in the trailing four quarters. It has a long-term earnings growth rate of 28.5%.

The Children's Place came up with an average positive earnings surprise of 16.3% in the trailing four quarters. It has a long-term earnings growth rate of 9%.

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