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Herbalife Buys 6.7 Million Shares Through Self-Tender Offer


Herbalife Ltd HLF recently announced the final results of its self-tender offer. The offer was carried out by way of a “modified Dutch auction” and expired on Oct 5, 2017.

The Depositary of this offer (Computershare Trust Company, N.A.) stated that the final count of shares repurchased is 6.7 million, acquired at a price of $68 per share for a total cash outlay of $457.8 million. The net cost incurred excludes fees and other related expenses to the tender offer. Herbalife has funded the share repurchases from a $1,300-million term loan under its $1,450-million senior secured credit facility, which was entered into by the company on Feb 15.

The final count results reveal that the net shares repurchased represent approximately 7.2% of the company’s outstanding shares as on Oct 9, 2017. Herbalife plans to give effect to the cancellation of the shares repurchased on Oct 16, post which its outstanding shares will amount to 87.2 million. The shares accepted for purchase would promptly be paid by the Depositary.

The offer also includes a non-transferable contractual CVR that allows shareholders to receive a contingent payment in cash, if Herbalife is acquired through a private transaction in the forthcoming two years. The Depositary for this offer also acts as the CVR agent.

Enhanced Investor Confidence Triggers Share Growth

The cash cost for the shares tendered were lower than the company’s initial offer to buy back $600 million worth common stock at a price of not less than $60 or exceeding $68. This indicates a general unwillingness amongst investors to sell the stock. Recently, the company also enticed investors with its upbeat earnings view for the upcoming third quarter of 2017 results. 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. (Read More: Will Herbalife's Upbeat Earnings View Help Lift the Stock?)

The enhanced investor confidence in the stock is apparent from its share price performance. Since the announcement of the preliminary results of this offer on Oct 6, shares of the company have returned 2.7%, closing at $77.30 on Oct 11. We also observe that shares of the company have surged 33% in the past six months, outperforming the industry’s decline of 10.1%.

However, we note that Herbalife’s sales volumes have declined in recent times owing to new stringent FTC regulations in the United States, softness in its Mexico operations and price hike in China. Moreover, the recent share repurchases have also enhanced the company’s debt burden.

Nevertheless, this Zacks Rank #3 (Hold) stock remains confident regarding its performance, backed by its solid earnings history, cost saving measures and technology innovations. The stock currently carries a VGM Score of A, indicating its inherent strength.

Looking for More? Check These Three Trending Retail Stocks

Investors may also consider some better-ranked stocks from the same sector that include Burlington Stores Inc BURL, Five Below Inc FIVE and The Children's Place Inc PLCE 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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