Carl Icahn (Trades, Portfolio) has signaled increasing confidence in his bet on Herbalife (HLF, Financial), paying more per share this week to add to his position than he has on average for previous purchases, as odds mount against the short thesis on the company by fellow investor Bill Ackman (Trades, Portfolio).
Icahn bought 372,324 shares of the multilevel marketing company on March 10, according to GuruFocus data on March 13 filings. The buy increases his position in the company by 1.65% to 22,872,324 shares, or a 24.57% stake.
Shares of Herbalife traded for roughly $52 during Icahn’s Monday purchase, 19% higher than the $44 average price per share he paid for the entire stake. Icahn started the position in the first quarter of 2013 when the price averaged $39 and paid at most $66 in the first quarter of 2014 but for only 33,515 shares. .
Since the latter half of 2016, he has purchased more aggressively and at higher prices, buying millions of shares at prices in the $50s and $60s. Herbalife shares had gained 8% year to date when Icahn made his first purchase of 2017, though he bought on a small dip from their $72.22 high. The price has risen 7.8% since the news of his purchase to $56.45 at market close Friday.
Icahn took a Herbalife position in diametric opposition to Bill Ackman (Trades, Portfolio), who has actively tried to take the company down by exposing it as a pyramid scheme, in support of his short position against it. Icahn’s bet has paid off slightly more. Herbalife’s stock has gained 48% since he bought a stake. Ackman started his short at around $48 per share in 2012, for an approximate 17.6% loss.
Herbalife also settled with the FTC on July 15 to conclude an investigation into whether it operated as a pyramid scheme.
“Furthermore, we believe the injunctive relief demanded by the FTC is likely to significantly impact Herbalife’s financial performance beginning in the second quarter of 2017. Coupled with decelerating growth in many international markets, especially in China, we expect earnings to decline in 2017,” Ackman said In a third-quarter letter. “We remain short Herbalife because we believe its intrinsic value is zero.”
On Feb. 23, Herbalife reported flat net sales of $4.5 billion compared to 2015. Net income was $260 million, or $3.02 per share, compared to $339.1 million or $3.97 per share for 2015, decreased by $82.2 million or 95 cents per share due to foreign currency headwinds.
The company also authorized share buybacks of $1.5 billion over three years, to positively impact earnings per share beginning in 2018. A new debt deal is also slated to decrease 2017 earnings per share by 55 cents.
For 2017, the company’s guidance remained unchanged in the fourth quarter in a range of 2% to 5% growth for volume points, with a decline between 1% and 5% expected for the first quarter. It also expects currencies to weigh down full-year net sales, guiding for 0.3% to 3.3% in growth, with currency-adjust net sales at 2.6% to 6.6% growth.
See Carl Icahn (Trades, Portfolio)'s portfolio here.
