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GuruFocus Financial Strength Rank measures how strong a company’s financial situation is. It is based on these factors

1. The debt burden that the company has as measured by its Interest coverage (current year).
2. Debt to revenue ratio. The lower, the better
3. Altman Z-score.

A company ranks high with financial strength is likely to withstand any business slowdowns and recessions.

Financial Strength : 8/10

vs
industry
vs
history
Cash to Debt 0.42
HLF's Cash to Debt is ranked higher than
63% of the 1494 Companies
in the Global Household & Personal Products industry.

( Industry Median: 0.53 vs. HLF: 0.42 )
HLF' s 10-Year Cash to Debt Range
Min: 0.28   Max: No Debt
Current: 0.42

Equity to Asset -0.17
HLF's Equity to Asset is ranked lower than
61% of the 1493 Companies
in the Global Household & Personal Products industry.

( Industry Median: 0.53 vs. HLF: -0.17 )
HLF' s 10-Year Equity to Asset Range
Min: -0.17   Max: 0.43
Current: -0.17

-0.17
0.43
Interest Coverage 27.69
HLF's Interest Coverage is ranked higher than
70% of the 947 Companies
in the Global Household & Personal Products industry.

( Industry Median: 15.78 vs. HLF: 27.69 )
HLF' s 10-Year Interest Coverage Range
Min: 1.13   Max: 57
Current: 27.69

1.13
57
F-Score: 5
Z-Score: 3.71
M-Score: -3.23
GuruFocus Profitability Rank ranks how profitable a company is and how likely the company’s business will stay that way. It is based on these factors:

1. Operating Margin
2. Trend of the Operating Margin (5-year average). The company with an uptrend profit margin has a higher rank.
••3. Consistency of the profitability
4. Piotroski F-Score
5. Predictability Rank•

The maximum rank is 10. A rank of 7 or higher means a higher profitability and may stay that way. A rank of 3 or lower indicates that the company has had trouble to make a profit.

Profitability Rank is not directly related to the Financial Strength Rank. But if a company is consistently profitable, its financial strength will be stronger.

Profitability & Growth : 8/10

vs
industry
vs
history
Operating margin (%) 13.82
HLF's Operating margin (%) is ranked higher than
88% of the 1510 Companies
in the Global Household & Personal Products industry.

( Industry Median: 6.04 vs. HLF: 13.82 )
HLF' s 10-Year Operating margin (%) Range
Min: 9.23   Max: 16.28
Current: 13.82

9.23
16.28
Net-margin (%) 9.10
HLF's Net-margin (%) is ranked higher than
85% of the 1511 Companies
in the Global Household & Personal Products industry.

( Industry Median: 4.16 vs. HLF: 9.10 )
HLF' s 10-Year Net-margin (%) Range
Min: -1.09   Max: 12.01
Current: 9.1

-1.09
12.01
ROE (%) 213.06
HLF's ROE (%) is ranked higher than
100% of the 1499 Companies
in the Global Household & Personal Products industry.

( Industry Median: 8.11 vs. HLF: 213.06 )
HLF' s 10-Year ROE (%) Range
Min: -9.47   Max: 111.42
Current: 213.06

-9.47
111.42
ROA (%) 18.59
HLF's ROA (%) is ranked higher than
98% of the 1516 Companies
in the Global Household & Personal Products industry.

( Industry Median: 4.13 vs. HLF: 18.59 )
HLF' s 10-Year ROA (%) Range
Min: -1.54   Max: 30.79
Current: 18.59

-1.54
30.79
ROC (Joel Greenblatt) (%) 224.92
HLF's ROC (Joel Greenblatt) (%) is ranked higher than
99% of the 1513 Companies
in the Global Household & Personal Products industry.

( Industry Median: 14.08 vs. HLF: 224.92 )
HLF' s 10-Year ROC (Joel Greenblatt) (%) Range
Min: 113.68   Max: 500.88
Current: 224.92

113.68
500.88
Revenue Growth (%) 27.60
HLF's Revenue Growth (%) is ranked higher than
96% of the 1315 Companies
in the Global Household & Personal Products industry.

( Industry Median: 5.10 vs. HLF: 27.60 )
HLF' s 10-Year Revenue Growth (%) Range
Min: 5.2   Max: 27.6
Current: 27.6

5.2
27.6
EBITDA Growth (%) 28.70
HLF's EBITDA Growth (%) is ranked higher than
95% of the 1180 Companies
in the Global Household & Personal Products industry.

( Industry Median: 3.40 vs. HLF: 28.70 )
HLF' s 10-Year EBITDA Growth (%) Range
Min: 6.7   Max: 29.8
Current: 28.7

6.7
29.8
EPS Growth (%) 27.50
HLF's EPS Growth (%) is ranked higher than
91% of the 1059 Companies
in the Global Household & Personal Products industry.

( Industry Median: 3.80 vs. HLF: 27.50 )
HLF' s 10-Year EPS Growth (%) Range
Min: 18.8   Max: 41.3
Current: 27.5

18.8
41.3
» HLF's 10-Y Financials

Financials


Revenue & Net Income
Cash & Debt
Oprt. Cash Flow & Free Cash Flow

» Details

Guru Trades

Q3 2013

HLF Guru Trades in Q3 2013

Kyle Bass 436,371 sh (New)
Stanley Druckenmiller 79,032 sh (New)
Richard Perry 2,632,138 sh (New)
John Keeley 11,000 sh (New)
Jeremy Grantham 61,581 sh (+14.52%)
Kyle Bass 500,000 sh (unchged)
Kyle Bass 1,300,000 sh (unchged)
Carl Icahn 16,966,485 sh (unchged)
George Soros 5,039,175 sh (unchged)
Whitney Tilson 5,100 sh (unchged)
Joel Greenblatt 51,421 sh (-11.64%)
Jim Simons 320,200 sh (-15.94%)
MS Global Franchise Fund 150,648 sh (-35.3%)
Steven Cohen 6,403 sh (-64.11%)
» More
Q4 2013

HLF Guru Trades in Q4 2013

Louis Moore Bacon 39,500 sh (New)
Chuck Royce 1,700 sh (New)
Pioneer Investments 65,112 sh (New)
Jeremy Grantham 782,578 sh (+1170.81%)
Jim Simons 735,700 sh (+129.76%)
Steven Cohen 12,700 sh (+98.34%)
Richard Perry 3,000,000 sh (+13.98%)
Carl Icahn 16,966,485 sh (unchged)
Louis Moore Bacon 50,000 sh (unchged)
Kyle Bass Sold Out
John Keeley Sold Out
Stanley Druckenmiller Sold Out
MS Global Franchise Fund 127,111 sh (-15.62%)
Joel Greenblatt 39,565 sh (-23.06%)
George Soros 3,205,519 sh (-36.39%)
» More
Q1 2014

HLF Guru Trades in Q1 2014

Paul Tudor Jones 15,022 sh (New)
John Burbank 4,036 sh (New)
Kyle Bass 318,000 sh (New)
Richard Perry 4,800,000 sh (+60%)
George Soros 4,901,337 sh (+52.9%)
Carl Icahn 17,000,000 sh (+0.2%)
Joel Greenblatt Sold Out
MS Global Franchise Fund Sold Out
Chuck Royce Sold Out
Steven Cohen Sold Out
Pioneer Investments Sold Out
Jim Simons 638,600 sh (-13.2%)
Jeremy Grantham 646,878 sh (-17.34%)
Louis Moore Bacon 17,500 sh (-55.7%)
» More
Q2 2014

HLF Guru Trades in Q2 2014

Carl Icahn 17,000,000 sh (unchged)
Louis Moore Bacon Sold Out
Kyle Bass Sold Out
George Soros 4,736,337 sh (-3.37%)
Jeremy Grantham 567,778 sh (-12.23%)
John Burbank 3,482 sh (-13.73%)
Richard Perry 4,000,000 sh (-16.67%)
Jim Simons 324,100 sh (-49.25%)
Paul Tudor Jones 7,100 sh (-52.74%)
» More
» Details

Insider Trades

Latest Guru Trades with HLF

(List those with share number changes of more than 20%, or impact to portfolio more than 0.1%)

GuruDate Trades Impact to Portfolio Price Range * (?) Current Price Change from Average Current Shares
Richard Perry 2014-06-30 Reduce -16.67%1.28%$51.48 - $65.69 $ 44.69-27%4000000
Richard Perry 2014-03-31 Add 60%2.89%$49.54 - $81.81 $ 44.69-33%4800000
George Soros 2014-03-31 Add 52.9%0.97%$49.54 - $81.81 $ 44.69-33%4901337
Joel Greenblatt 2014-03-31 Sold Out 0.07%$49.54 - $81.81 $ 44.69-33%0
John Burbank 2014-03-31 New Buy0.01%$49.54 - $81.81 $ 44.69-33%4036
George Soros 2013-12-31 Reduce -36.39%1.38%$61.6 - $80.81 $ 44.69-35%3205519
Joel Greenblatt 2013-12-31 Reduce -23.06%0.03%$61.6 - $80.81 $ 44.69-35%39565
John Keeley 2013-12-31 Sold Out 0.01%$61.6 - $80.81 $ 44.69-35%0
Richard Perry 2013-09-30 New Buy4.6%$46.39 - $73.46 $ 44.69-28%2632138
John Keeley 2013-09-30 New Buy0.01%$46.39 - $73.46 $ 44.69-28%11000
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Guru Investment Theses on Herbalife Ltd

Bill Ackman Comments on Herbalife - Oct 04, 2013

During the quarter, Herbalife (HLF) stock price rose from approximately $45 to $70 per share, and from approximately $60 to $70 per share during the month of September alone. The principal driver of the stock price appears to be the belief by bulls that government regulators will do nothing,and that the Company will continue to generate strong earnings and cash flows which will be returned to shareholders in the form of share repurchases, which could force shorts, including Pershing Square, to cover.The stock price appreciation this past month appears to have been driven by commentary from Tim Ramey, a perennially bullish Herbalife analyst from D.A. Davison, who stated a few weeks ago that in September 2013 PriceWaterhouseCoopers (PwC) would complete its re-audit of the Company's last three years of financial statements, and Herbalife, shortly thereafter, would launch a $2 billion investment grade bond issue at an interest rate of 4%, the proceeds to be used to fund a share repurchase at $75 per share. According to Ramey, the buyback would serve to refute the bear case on Herbalife as shorts, including Pershing Square, are forced to cover.

The high degree of specificity of Ramey's bullish call has led investors to believe that he is speaking on behalf of th e Company. While September has come and gone without PwC's completion of Herbalife's re -audited financials, bullish investors apparently continue to expect the re-audit to be completed shortly, and a large buyback to be forthcoming.

We are skeptical of Ramey's pronouncements for several reasons. While we do not know the timing of PwC's re - audit of Herbalife's financial statements, we have identified a substantial number of serious issues with Herbalife's accounting, disclosure, and tax policies that we h ave brought to the attention of PwC and the SEC in a series of three letters that we delivered to them in recent weeks, the first of which we shared with you earlier this month. At a minimum, we would not be surprised if the re-audited financials provide further disclosures about the Company which will raise additional questions about its business practices and its previously reported results.

With respect to the supposed $2 billion investment grade bond issue at an interest rate of 4%, we believe it is extremely unlikely that Herbalife will be able to garner an investment grade rating and raise $2 billion, let alone at an interest rate of 4%. As of March 2011, when Moody's withdrew its ratings on Herbalife, the Company was rated Ba1, a junk rating. When the ratings were withdrawn, Herbalife had only $178 million of debt, approximately 0.5 times the then 12 month trailing operating profits, and there was little public scrutiny of the Company's business practices. If Herbalife were able to issue $2 billion of additional debt today, the Company would have $3 billion of total debt, or 4.3 times 12-month trailing operating profits. With more than 16times as much debt, substantially greater scrutiny of the Company's business practices, and a regulatory cloud over the Company, we believe that it would now garner a substantially lower junk rating than that of early 2011.

Furthermore, we question whether a bank would be willing to take on the potential underwriter liability associated with a debt issue for Herbalife. If the Company were later deemed to be a pyramid scheme, an underwriter could find itself liable for the face amount of the entire debtissue, as recoveries to creditors of a pyramid scheme are likely to be de minimis . To earn a 150 basis point fee and risk losing 70 times that amount in a lawsuit is a risk-reward proposition thatwe believe no financial institution would find attractive.

All of the above notwithstanding, if Herbalife could achieve a $2 billion financing, we believe the interest rate would be much higher, and the buyback could only be completed at a price that would be minimally accretive to the Company, factoring in the after-tax cost of debt and the buyback price required to acquire nearly 30% of the outstanding float. When one considers the high degree of leverage that would result from the buyback, we would expect the Company's earnings multiple to compress accordingly. As a result, we believe that such a leveraged recapitalization would generate minimal, if any, shareholder value.

Based on an analysis of comparable situations with our prime brokers, we believe that such a buyback would not require us to cover our position. Furthermore, if a large amount of debt were issued, an Herbalife CDS market would likely develop, presenting us with an even more attractive method to bet against the then highly leveraged Company. We could then choose to add to or replace all or a portion of our existing short position with an even larger notional short position in the debt through the purchase of CDS. We would welcome such an opportunity,although for the reasons described above, we do not believe that the Company will be able to borrow funds to complete such a transaction.

Since our presentation on Herbalife at the end of last year, we have not learned any facts that are inconsistent with our belief that the Company is a pyramid scheme that engages in unlawful and deceptive marketing practices. In fact, there have been a number of materially positive developments that increase the likelihood of regulatory intervention and the Company's closure.

Numerous state, federal, and international regulators have launched investigations or inquiries into the Company's business practices and products that we believe are ongoing. Many federal,state and local elected officials, consumer protection and community organizations and other advocates have publicly called for the FTC and state regulators to investigate the Company. A number of whistle blowers have contacted us, several in the last few weeks alone, and provided us with information that is confirmatory of our thesis that Herbalife is a pyramid scheme while raising additional concerns that we had not previously identified. Bottom line, we continue to have enormous conviction in our investment thesis.

While we have endured mark-to-market losses on this investment as Herbalife bulls have promoted the stock and downplayed the probability of government intervention, we believe it is only a matter of time before the Company is shut down and prosecuted by regulators.

In order to mitigate the risk of further mark-to-market losses on Herbalife, in recent weeks wehave restructured the position by reducing our short equity position by more than 40% andreplacing it with long-term derivatives, principally over-the-counter put options. Therestructuring of the position preserves our opportunity for profit – if the Company fails within areasonable time frame we will make a similar amount of profit as if we had maintained the entireinitial short position – while mitigating the risk of further substantial mark-to-market losses – because our exposure on the put options is limited to the total premium paid. In restructuring the position, we have also reduced the amount of capital consumed by the investment from 16% to12% of our funds.

We were able to restructure the position cost effectively due to several factors. Over the last 60or so days, the cost to borrow Herbalife shares has declined substantially while the stock pricehas risen. Shortly after we filed a formal complaint with the SEC regarding what we believe to be unlawfully manipulative conduct by other market participants, the cost to borrow Herbalifeshares dropped substantially to the lowest rate since prior to our presentation last December. Inan unrelated recent enforcement action, the SEC confirmed that attempting to engineer a shortsqueeze by removing stock from the available lending base is a form of market manipulation.

Because of the rise of the stock price, the low cost of borrow, and the fact that we are betting onthe failure of the Company, we have been able to purchase long-dated, privately negotiated out-of-the-money put options on terms that offer us an attractive opportunity for profit versus their cost. Furthermore, by substantially reducing the size of our short position as a percentage of theshare float, we minimize the risk of so-called short squeezes or other technical attempts bymarket manipulators to force us to cover our position. In that a substantial component of the bullcase on Herbalife is predicated on forcing us to cover, we think the restructuring of our investment negates this important pillar of the bull case.

The biggest risk of the restructured position is that time begins to be a factor with respect to a portion of our investment. We believe, however, that the long-term nature of the options we ownwill provide sufficient time for us to be rewarded on this portion of our position. In that theoptions are privately negotiated, over-the-counter contracts, we have the ability to extend their terms, if we deem it prudent and attractive to do so in the future.

At yesterday's closing price of $72.84, we believe the potential reward from being short Herbalife is extremely attractive relative to the risk of loss. Using the average analyst s' price target of $77 per share – which assumes that the Company is operating entirely legally – investors have less than 6% upside compared with 100% downside if the Company is determinedto be a pyramid scheme by regulators.

In my career, I have not seen a less attractive risk-reward ratio than a long investment inHerbalife common stock at current levels.

From Bill Ackman's Pershing Square third quarter 2013 investor letter.


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Daniel Loeb Comments on Herbalife - Apr 04, 2013

Herbalife (HLF) is a leading provider of weight management and nutritional supplements operating in more than 80 countries through a network of independent distributors. The stock declined by nearly half last month following controversial assertions made by a short seller about Herbalife’s business model and practices. Third Point has a different view and holds about 8% of Herbalife outstanding common stock, which we acquired mostly during the panicked selling that followed the short seller’s dramatic claims.

Based on its strong financial performance, Herbalife is a classic “compounder” – a well-managed company that sustains consistent top-line growth, has a leading market position,and steadily increases margins, earnings per share and free cash flow while demonstratingshareholder-friendly behavior. Since going public in 2004, Herbalife has increased revenueat a double digit rate for seven of the past eight years, expanded gross and operating margins, leveraged operating expenses, and introduced more premium products. Earnings per share have increased by approximately 20-50% each year since 2004, with the exception of 2009. Led by CEO Michael Johnson, management has also used the company’s ample free cash flow to de-lever its balance sheet and shrink the share count by nearly 25%. This type of steady non-cyclical growth is hard to find and puts Herbalife at the head of the compounders’ class.

With results like these, the case against Herbalife rests on a bold claim that the company isa fraud. The short seller’s lengthy argument against the Company can be boiled down tothree principal smoking guns: the first, a claim that Herbalife has been operating an “illegal pyramid scheme” under the nose of the Federal Trade Commission for the past 32 years;the second, that Herbalife’s loyal customer and distributor base has been exploited andharmed despite the low number of consumer complaints and generous company returnpolicies; and the third, a claim that Herbalife’s products are commodities sold at inflatedprices not supported by sufficient levels of advertising or R&D.Taken in reverse order, the third claim misses an essential truth that invalidates theindictment. No one believes Starbucks is a scam because you can buy a cheaper cup of

coffee at your local bodega. A key contributor to Herbalife’s growth has been its distributor-led “Nutrition Clubs”, where consumers can purchase single servings of the Company’s signature beverages. The short seller’s assertion ignores the significant value customers place on every consumer brand and its community “experience” – whether at a Herbalife Nutrition Club, a Starbucks, or a corner bar. The markup is merited by community and brand identity, not by the commodity itself.

The second claim seems similarly dubious. The FTC, by all accounts, receives a very low volume of complaints annually about Herbalife – fewer than forty per year – and we find it hard to believe the short seller’s theory that hundreds of thousands of people who have been scammed supposedly are too ashamed to speak up. Herbalife is well-known for its generous return policies, buying back product from exiting distributors for up to twelve months. The Company repurchases an average of only 1% of sales volume pursuant to this policy. It is difficult for us to understand why the buyback volume would be so low if there are in fact so many unsatisfied consumers and distributors who presumably would not hesitate to be reunited with their cash.

The pyramid scheme is a serious accusation that we have studied closely with our advisors. We do not believe it has merit. The short thesis rests on the notion that the FTC has been asleep at the switch, missed a massive fraud for over three decades, and will shortly awaken (at the behest of hedge fund short seller) to shut down the Company. We find this thesis to be preposterous, particularly since the FTC has been sensitive to frauds of this kind. Since 1997, the FTC has brought 13 separate cases against alleged pyramid schemes.None of the companies that the FTC pursued had been in business for more than ten years and 11 of the 13 companies involved were less than five years old, suggesting the FTC actively protects consumers subjected to this type of behavior. The FTC has also aggressively pursued enforcement actions against similarly odious “deceptive business opportunity schemes” [see www.ftc.gov/opa/2012/11/lostopp.shtm]under the “Business Opportunity Rule” (although this rule does not apply to multi-level marketers such as Herbalife).

All multi-level marketers (MLMs) by definition operate under a so-called “pyramid”structure and have some internal consumption, facts which do not render them patently illegal, as FTC guidance makes clear. [Seehttp://ftc.gov/os/comments /bizoprevised/comments/535221-00114.pdf ]. Our analysis shows that the current, well-vetted regulatory framework provides plenty of room for multi-level marketers to conduct business legally, and we believe Herbalife operates squarely within the FTC’s boundaries. For example, the company does not directly pay distributors for recruiting new ones. We also understand that Herbalife has a series of internal policies in place (based on a 1979 case involving Amway) designed to reduce the possibility of abuses that have been identified in other MLM structures.Do such policies eliminate all possibilities of bad behavior? Most likely they do not,especially at a company with so many distributors. By the Company’s own admission, past irregularities and misbehavior have been detected and corrected. While the short seller’s presentation was lengthy, it presented no evidence to show that Herbalife has crossed aline that would compel regulators to shut it down. Indeed, there was very little “new” news in the presentation and when pressed in later interviews, even the short seller conceded that the FTC was not looking at Herbalife’s practices. In our experience, expert regulators like those at the FTC do not respond to sudden pressure from hedge fund whistle blowers by acceding blindly to their demands. Finally, even if there were some regulatory intervention that changed how the company does business, we are comforted by the fact that 80% of Herbalife’s revenues come from overseas.

So we return to our compounder thesis, available at an attractive discount, probably for a limited time only. We believe that continued strong operating performance combined with disciplined capital return could easily send the stock back towards its April highs. Let’s not forget: the business itself is performing well. Volume, revenue and earnings are all growing double digits and the balance sheet is largely unlevered. Management has a history of returning 100% of net income to shareholders in the form of dividends and buybacks. If management were to deploy its existing $950 million buyback authorization in the $40-45range (only taking leverage to approximately 1.5x), we estimate that run-rate EPS for 2013could be $5.50-5.70 using the reduced share count. Applying a modest 10-12x earnings multiple suggests Herbalife’s shares are worth $55-$68, offering 40-70% upside from here and making the company a compelling long investment for Third Point. Given that the Company has historically traded more in the 12-14x range (and traded at 16-20x earnings through much of 2011 and early 2012), the opportunity for the Company to tell its side of the story tomorrow at its Analyst Day in New York, and the significant short interest, we believe shares could even trade well above our current price target.


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Daniel Loeb Comments on Herbalife - Jan 09, 2013

New Equity Position: Herbalife (HLF): Herbalife is a leading provider of weight management and nutritional supplements operating in more than 80 countries through a network of independent distributors. The stock declined by nearly half last month following controversial assertions made by a short seller about Herbalife’s business model and practices. Third Point has a different view and holds about 8% of Herbalife outstanding common stock, which we acquired mostly during the panicked selling that followed the short seller’s dramatic claims.

Based on its strong financial performance, Herbalife is a classic “compounder” – a well-managed company that sustains consistent top-line growth, has a leading market position, and steadily increases margins, earnings per share and free cash flow while demonstrating shareholder-friendly behavior. Since going public in 2004, Herbalife has increased revenue at a double digit rate for seven of the past eight years, expanded gross and operating margins, leveraged operating expenses, and introduced more premium products. Earnings per share have increased by approximately 20-50% each year since 2004, with the exception of 2009. Led by CEO Michael Johnson, management has also used the company’s ample free cash flow to de-lever its balance sheet and shrink the share count by nearly 25%. This type of steady non-cyclical growth is hard to find and puts Herbalife at the head of the compounders’ class.

With results like these, the case against Herbalife rests on a bold claim that the company is a fraud. The short seller’s lengthy argument against the Company can be boiled down to three principal smoking guns: the first, a claim that Herbalife has been operating an “illegal pyramid scheme” under the nose of the Federal Trade Commission for the past 32 years; the second, that Herbalife’s loyal customer and distributor base has been exploited and harmed despite the low number of consumer complaints and generous company return policies; and the third, a claim that Herbalife’s products are commodities sold at inflated prices not supported by sufficient levels of advertising or R&D.

Taken in reverse order, the third claim misses an essential truth that invalidates the indictment. No one believes Starbucks is a scam because you can buy a cheaper cup of coffee at your local bodega. A key contributor to Herbalife’s growth has been its distributor-led “Nutrition Clubs”, where consumers can purchase single servings of the Company’s signature beverages. The short seller’s assertion ignores the significant value customers place on every consumer brand and its community “experience” – whether at a Herbalife Nutrition Club, a Starbucks, or a corner bar. The markup is merited by community and brand identity, not by the commodity itself.

The second claim seems similarly dubious. The FTC, by all accounts, receives a very low volume of complaints annually about Herbalife – fewer than forty per year – and we find it hard to believe the short seller’s theory that hundreds of thousands of people who have been scammed supposedly are too ashamed to speak up. Herbalife is well-known for its generous return policies, buying back product from exiting distributors for up to twelve months. The Company repurchases an average of only 1% of sales volume pursuant to this policy. It is difficult for us to understand why the buyback volume would be so low if there are in fact so many unsatisfied consumers and distributors who presumably would not hesitate to be reunited with their cash.

The pyramid scheme is a serious accusation that we have studied closely with our advisors. We do not believe it has merit. The short thesis rests on the notion that the FTC has been asleep at the switch, missed a massive fraud for over three decades, and will shortly awaken (at the behest of hedge fund short seller) to shut down the Company. We find this thesis to be preposterous, particularly since the FTC has been sensitive to frauds of this kind. Since 1997, the FTC has brought 13 separate cases against alleged pyramid schemes. None of the companies that the FTC pursued had been in business for more than ten years and 11 of the 13 companies involved were less than five years old, suggesting the FTC actively protects consumers subjected to this type of behavior. The FTC has also aggressively pursued enforcement actions against similarly odious “deceptive business opportunity schemes” [see www.ftc.gov/opa/2012/11/lostopp.shtm] under the “Business Opportunity Rule” (although this rule does not apply to multi-level marketers such as Herbalife).

All multi-level marketers (MLMs) by definition operate under a so-called “pyramid” structure and have some internal consumption, facts which do not render them patently illegal, as FTC guidance makes clear. [See http://ftc.gov/os/comments /bizoprevised /comments/535221-00114.pdf]. Our analysis shows that the current, well-vetted regulatory framework provides plenty of room for multi-level marketers to conduct business legally, and we believe Herbalife operates squarely within the FTC’s boundaries. For example, the company does not directly pay distributors for recruiting new ones. We also understand that Herbalife has a series of internal policies in place (based on a 1979 case involving Amway) designed to reduce the possibility of abuses that have been identified in other MLM structures.

Do such policies eliminate all possibilities of bad behavior? Most likely they do not, especially at a company with so many distributors. By the Company’s own admission, past irregularities and misbehavior have been detected and corrected. While the short seller’s presentation was lengthy, it presented no evidence to show that Herbalife has crossed a line that would compel regulators to shut it down. Indeed, there was very little “new” news in the presentation and when pressed in later interviews, even the short seller conceded that the FTC was not looking at Herbalife’s practices. In our experience, expert regulators like those at the FTC do not respond to sudden pressure from hedge fund whistleblowers by acceding blindly to their demands. Finally, even if there were some regulatory intervention that changed how the company does business, we are comforted by the fact that 80% of Herbalife’s revenues come from overseas.

So we return to our compounder thesis, available at an attractive discount, probably for a limited time only. We believe that continued strong operating performance combined with disciplined capital return could easily send the stock back towards its April highs. Let’s not forget: the business itself is performing well. Volume, revenue and earnings are all growing double digits and the balance sheet is largely unlevered. Management has a history of returning 100% of net income to shareholders in the form of dividends and buybacks. If management were to deploy its existing $950 million buyback authorization in the $40-45 range (only taking leverage to approximately 1.5x), we estimate that run-rate EPS for 2013 could be $5.50-5.70 using the reduced share count. Applying a modest 10-12x earnings multiple suggests Herbalife’s shares are worth $55-$68, offering 40-70% upside from here and making the company a compelling long investment for Third Point. Given that the Company has historically traded more in the 12-14x range (and traded at 16-20x earnings through much of 2011 and early 2012), the opportunity for the Company to tell its side of the story tomorrow at its Analyst Day in New York, and the significant short interest, we believe shares could even trade well above our current price target.

From Daniel Loeb's fourth quarter shareholder letter.


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On Thursday, July 31, the CFO, COO, and President of Herbalife bought a total of $1.7 million worth of their company’s stock to affirm their confidence in its business model. The purchases were detected on the Insiders page of GuruFocus. Read more...
Usana: Will You Bet on GuruFocus or on the Shorts?
Usana Health Sciences, Inc. (USNA) appears on not one, but three, different GuruFocus screens: Undervalued Predictable, Buffett-Munger, and Peter Lynch. As reported by Vera Yuan in the June edition of the article How Many Stocks Can Pass GuruFocus Value Screeners? getting through three screens puts USNA in an elite group; it's just one of 15 stocks out of a field of 16,884 stocks to make it. USNA also made it through the same triple screening process in May and April. Read more...
How Investors Could Profit From the Pershing Square Versus Herbalife Duel
Disclosure: I neither long nor short Herbalife. I also do not have any financial interest in the company. Read more...
What Guru Investors Did with Bill Ackman's Herbalife in Q1
When an investor as prominent as Bill Ackman (Trades, Portfolio) makes a short case of a public company, many other investors will either agree with him, or view it as an opportunity to take a long position on the ensuing dip. But in the case of weight-loss and nutrition company Herbalife (HLF), its stock has had a tortuous ride since Ackman announced his short in 2012, as no ultimate determination about his thesis has been made. That didn’t stop fund managers from taking sides again in the first quarter. Read more...
George Soros Reports Top Five Stocks
George Soros (Trades, Portfolio) and his fund Soros Fund Management recently announced their first quarter portfolio holdings which highlighted 151 new buys. The fund now holds on to 305 stocks valued at over $10.1 billion. The following five stocks are his five largest holdings as of the close of the first quarter. Read more...
Top Five Guru-Held Central American Companies
Using the GuruFocus Aggregated Portfolio Screener you can filter results to see what companies maintain the highest amount of guru ownership. By using this screener, we filtered down to see which companies based in Central American countries were held by the highest number of gurus. The following five companies come from a variety of industries, are based out of Central America and are held by the largest number of gurus. Read more...
Bill Ackman Comments on Herbalife
During the quarter, Herbalife (HLF) stock price rose from approximately $45 to $70 per share, and from approximately $60 to $70 per share during the month of September alone. The principal driver of the stock price appears to be the belief by bulls that government regulators will do nothing,and that the Company will continue to generate strong earnings and cash flows which will be returned to shareholders in the form of share repurchases, which could force shorts, including Pershing Square, to cover.The stock price appreciation this past month appears to have been driven by commentary from Tim Ramey, a perennially bullish Herbalife analyst from D.A. Davison, who stated a few weeks ago that in September 2013 PriceWaterhouseCoopers (PwC) would complete its re-audit of the Company's last three years of financial statements, and Herbalife, shortly thereafter, would launch a $2 billion investment grade bond issue at an interest rate of 4%, the proceeds to be used to fund a share repurchase at $75 per share. According to Ramey, the buyback would serve to refute the bear case on Herbalife as shorts, including Pershing Square, are forced to cover. Read more...

Ratios

vs
industry
vs
history
P/E(ttm) 9.90
HLF's P/E(ttm) is ranked higher than
92% of the 1611 Companies
in the Global Household & Personal Products industry.

( Industry Median: 22.70 vs. HLF: 9.90 )
HLF' s 10-Year P/E(ttm) Range
Min: 4.07   Max: 912
Current: 9.9

4.07
912
P/S 0.89
HLF's P/S is ranked higher than
71% of the 1611 Companies
in the Global Household & Personal Products industry.

( Industry Median: 1.08 vs. HLF: 0.89 )
HLF' s 10-Year P/S Range
Min: 0.37   Max: 2.47
Current: 0.89

0.37
2.47
PFCF 7.98
HLF's PFCF is ranked higher than
94% of the 1611 Companies
in the Global Household & Personal Products industry.

( Industry Median: 78.00 vs. HLF: 7.98 )
HLF' s 10-Year PFCF Range
Min: 3.83   Max: 37.5
Current: 7.98

3.83
37.5
EV-to-EBIT 7.40
HLF's EV-to-EBIT is ranked higher than
95% of the 1611 Companies
in the Global Household & Personal Products industry.

( Industry Median: 19.54 vs. HLF: 7.40 )
HLF' s 10-Year EV-to-EBIT Range
Min: 3.1   Max: 15.3
Current: 7.4

3.1
15.3
PEG 0.34
HLF's PEG is ranked higher than
99% of the 1611 Companies
in the Global Household & Personal Products industry.

( Industry Median: 9999.00 vs. HLF: 0.34 )
HLF' s 10-Year PEG Range
Min: 0.25   Max: 1.32
Current: 0.34

0.25
1.32
Shiller P/E 13.52
HLF's Shiller P/E is ranked higher than
93% of the 1611 Companies
in the Global Household & Personal Products industry.

( Industry Median: 52.60 vs. HLF: 13.52 )
HLF' s 10-Year Shiller P/E Range
Min: 7.52   Max: 34.77
Current: 13.52

7.52
34.77
Current Ratio 1.59
HLF's Current Ratio is ranked higher than
66% of the 1104 Companies
in the Global Household & Personal Products industry.

( Industry Median: 1.69 vs. HLF: 1.59 )
HLF' s 10-Year Current Ratio Range
Min: 1   Max: 2.15
Current: 1.59

1
2.15
Quick Ratio 1.22
HLF's Quick Ratio is ranked higher than
72% of the 1104 Companies
in the Global Household & Personal Products industry.

( Industry Median: 1.05 vs. HLF: 1.22 )
HLF' s 10-Year Quick Ratio Range
Min: 0.66   Max: 1.79
Current: 1.22

0.66
1.79

Dividend & Buy Back

vs
industry
vs
history
Dividend Yield 2.01
HLF's Dividend Yield is ranked higher than
55% of the 1136 Companies
in the Global Household & Personal Products industry.

( Industry Median: 1.83 vs. HLF: 2.01 )
HLF' s 10-Year Dividend Yield Range
Min: 0.46   Max: 6.18
Current: 2.01

0.46
6.18
Dividend Payout 0.20
HLF's Dividend Payout is ranked higher than
90% of the 1611 Companies
in the Global Household & Personal Products industry.

( Industry Median: 0.77 vs. HLF: 0.20 )
HLF' s 10-Year Dividend Payout Range
Min: 0.15   Max: 0.41
Current: 0.2

0.15
0.41
Dividend growth (3y) 38.70
HLF's Dividend growth (3y) is ranked higher than
96% of the 864 Companies
in the Global Household & Personal Products industry.

( Industry Median: 2.70 vs. HLF: 38.70 )
HLF' s 10-Year Dividend growth (3y) Range
Min: 0   Max: 44.2
Current: 38.7

0
44.2
Yield on cost (5-Year) 9.79
HLF's Yield on cost (5-Year) is ranked higher than
95% of the 1163 Companies
in the Global Household & Personal Products industry.

( Industry Median: 2.08 vs. HLF: 9.79 )
HLF' s 10-Year Yield on cost (5-Year) Range
Min: 2.25   Max: 30.26
Current: 9.79

2.25
30.26
Share Buyback Rate 5.30
HLF's Share Buyback Rate is ranked higher than
95% of the 912 Companies
in the Global Household & Personal Products industry.

( Industry Median: -0.30 vs. HLF: 5.30 )
HLF' s 10-Year Share Buyback Rate Range
Min: 5.4   Max: -11.7
Current: 5.3

Valuation & Return

vs
industry
vs
history
Price/DCF (Projected) 0.75
HLF's Price/DCF (Projected) is ranked higher than
93% of the 1611 Companies
in the Global Household & Personal Products industry.

( Industry Median: 3.36 vs. HLF: 0.75 )
HLF' s 10-Year Price/DCF (Projected) Range
Min: 0.4   Max: 1.93
Current: 0.75

0.4
1.93
Price/Median PS Value 0.64
HLF's Price/Median PS Value is ranked higher than
94% of the 1611 Companies
in the Global Household & Personal Products industry.

( Industry Median: 1.16 vs. HLF: 0.64 )
HLF' s 10-Year Price/Median PS Value Range
Min: 0.31   Max: 1.7
Current: 0.64

0.31
1.7
Price/Peter Lynch Fair Value 0.39
HLF's Price/Peter Lynch Fair Value is ranked higher than
99% of the 1611 Companies
in the Global Household & Personal Products industry.

( Industry Median: 9999.00 vs. HLF: 0.39 )
HLF' s 10-Year Price/Peter Lynch Fair Value Range
Min: 0.3   Max: 1.21
Current: 0.39

0.3
1.21
Earnings Yield (Greenblatt) 13.50
HLF's Earnings Yield (Greenblatt) is ranked higher than
93% of the 1387 Companies
in the Global Household & Personal Products industry.

( Industry Median: 6.20 vs. HLF: 13.50 )
HLF' s 10-Year Earnings Yield (Greenblatt) Range
Min: 6.5   Max: 32.2
Current: 13.5

6.5
32.2
Forward Rate of Return (Yacktman) 33.26
HLF's Forward Rate of Return (Yacktman) is ranked higher than
98% of the 1099 Companies
in the Global Household & Personal Products industry.

( Industry Median: 5.45 vs. HLF: 33.26 )
HLF' s 10-Year Forward Rate of Return (Yacktman) Range
Min: 17.9   Max: 34.5
Current: 33.26

17.9
34.5

Business Description

Industry: Consumer Packaged Goods » Household & Personal Products
Compare:LRLCY, KMB, RBGPF, EL, UNLRY » details
Traded in other countries:HOO.Germany
Herbalife, Ltd., was founded in 1980. The Company is a global nutrition company that sells weight management, healthy meals and snacks, sports and fitness, energy and targeted nutritional products as well as personal care products. The Company distributes and sells its products through a network of independent distributors, using the direct selling channel. As of December 31, 2012, it sold its products in 88 countries to and through a network of approximately 3.2 million independent distributors. The Company offers science-based products in four categories: weight management, targeted nutrition, energy, sports & fitness and Outer Nutrition. The weight management product portfolio includes meal replacement shakes, weight-loss enhancers, appetite suppressors and a variety of healthy snacks. Its collection of targeted nutrition products includes dietary supplements which contain vitamins, minerals and natural ingredients that support total well-being and long-term good health. The energy, sports & fitness category includes energy and isotonic drinks to support a healthy active lifestyle. The Outer Nutrition products include skin cleansers, moisturizers and lotions with antioxidants, as well as anti-aging products. The Company is focused on building and maintaining its distributor network by offering financially rewarding and flexible career opportunities through sales of quality, innovative and efficacious products to health conscious consumers. The Company's operating segments are based on geographical operations in six regions: North America, Mexico, South & Central America, EMEA (Europe, Middle East and Africa), Asia Pacific and China. It uses the umbrella trademarks Herbalife and the Tri-Leaf design worldwide, and protect several other trademarks and trade names related to its products and operations, such as Niteworks, Nourifusion, and Liftoff. In both its United States and foreign markets, the Company is affected by laws, governmental regulations, administrative determinations, court decisions and similar constraints.
» More Articles for NYSE:HLF

Headlines

Articles On GuruFocus.com
Insider Buys at 52-Week Lows Sep 06 2014 
Hedge Fund Manager Bill Ackman with a Very Profitable Year Aug 28 2014 
Nuskin - an MLM with wonky accounts Aug 18 2014 
Carl Icahn Buys Gannett Co, eBay, Sells Forest Laboratories, Netflix, Family Dollar, Holds Herbalife Aug 15 2014 
MS Global Franchise Fund First Quarter 2014 Commentary Aug 11 2014 
Bill Ackman's new best friend: Vladimir Putin Aug 09 2014 
Bill Ackman Talks About Being Surprised By The Herbalife "Short Squeeze" Aug 08 2014 
For kicks: just how big is Herbalife? And a simple proof that this is not a pyramid Aug 06 2014 
That Herbalife miss Aug 05 2014 
Herbalife Insiders Buy $1.7 Million In Company Stock Aug 04 2014 

More From Other Websites
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[video] Buffett’s Berkshire Still Nimble Despite Size Says 'Deep Value' Author Sep 08 2014
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