Activist investor Carl Icahn (Trades, Portfolio) purchased 1,832,402 shares in Herbalife Ltd. (HLF, Financial) on Nov. 3 as mentioned in a Form 4 filing with the Securities and Exchange Commission.
With Icahn’s insider buy, the nutrition company’s stock price soared 1.12% within 36 hours. The billionaire investor owns 21,443,931 shares in Herbalife.
Icahn builds Herbalife empire
The activist investor from Icahn Capital Management LP invested in Herbalife during the first quarter of 2013 with 16,355,131 shares and raised his stake to 17 million shares by the first quarter of 2014. During the third quarter, Icahn added nearly 2.6 million shares to his Herbalife position.
Icahn purchased 1,832,402 shares at $55.46 per share in the most recent transaction. As of Nov. 3, the activist investor owns 23.05% of outstanding Herbalife shares. Jim Simons (Trades, Portfolio), who owns 3.156 million shares, has the second-largest stake in Herbalife.
Company reports strong third-quarter earnings and fourth-quarter outlook
Herbalife, a weight management and energy production company, reported its third-quarter earnings Nov. 3. As discussed in the earnings release, the company generated $87.7 million in net income, yielding $1.01 diluted earnings per share. While these values slightly underperformed the prior-year period’s net income and EPS, Herbalife’s worldwide volume growth and net sales growth are 6% and 5%. Herbalife CEO Michael O. Johnson lauded the company’s efforts to exceed the “high end of third quarter EPS guidance.” Likely due to high earnings contribution, the company’s expected full-year EPS outlook raised 47 cents compared to the previous quarter’s earnings outlook.
Even though the company has a modest financial strength rank of 5, Herbalife’s profitability ranks 8 out of 10. The nutrition company’s return on assets outperforms 83% of global household and personal products companies, and Herbalife has above-average operating and net margins. Additionally, the company’s return on invested capital strongly outperforms its WACC.
Stock price soars as Herbalife remains a triple buy
Likely due to Icahn’s insider buy, Herbalife’s stock price climbed 1.12%. The stock remains undervalued based on its Peter Lynch Chart, its median price-sales (P/S) ratio and its intrinsic value based on DCF and DCF earnings. Additionally, Herbalife remains a triple buy: during the past three months, the company had six guru buys, one insider buy and a one-year rate of share buyback of 6.6%.
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Icahn previously discussed his optimistic views about Herbalife Oct. 17 on CNBC. A previous article summarizes the activist investor’s views.
Disclosure:”‹ The author has no position in Herbalife.
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