5 Reasons Why Herbalife Has Legs

Written by GSCR Staff   
Thursday, 17 January 2013 13:21

Maybe it’s me, but I cannot get enough of the Herbalife (NYSE – HLF - $45.06) story.  Hopefully you are just as entertained.  Yesterday, M&A raider and noted aggressive activist investor Carl Icahn bought a small stake in HLF, and the shares rose.  The Company beat Street earnings estimates and the stock appears to still be mired in a game of tug-of-war.  Will the ‘shorts’ get revenge soon?  Here are 5 reasons I think the story has some legs and will continue to appear in the news for the next several months.

      1) Drama Sells

No matter how much even we the industry like to pretend we are about ‘numbers’, these types of stories always get our interest.  CNBC, Bloomberg, FOX Business as well as all the online and paper media outlets continue to cover this.  This stuff always gets ratings.

 2) Giant Egos

Let’s face it, Icahn, Loeb, and Ackman all have giant egos.  Like any super-successful pro-athlete or Hollywood superstar, fame is part of the reason for their fortune.  I would not be surprised to see more marquee names to jump into this battle on both sides

 3) The Industry

We have a serious weight problem as a nation.  The ‘all-natural’ approach is a hot industry in general, so it is definitely topical.  The story would probably lose steam if we were talking about hydraulic valves.  What are those?  Exactly

 4) Analysts Analyze

When Ackman said that HLF was a ‘Ponzi’ scheme it stimulated the interest of the entire independent analyst community to dig into the books.  Sites like Seeking Alpha have been bombarded with everyone’s two cents.  At last check, there are close to 30 articles since January 1st from various analysts with grand ‘one-upsmanship’ in headlines like “Herbalife: Hedge Fund Porn, Part II.”

 5) Economics Concern? Enough Already

At this point even with a debt ceiling deadline looming this ‘drama’ is losing steam.  There is no doubt that it will heighten the closer we get, but more than likely a deal will be completed at the last minute.  After that, what else is there for media to sensationalize?

For now, we think the ‘longs’ win and the stock ultimately climbs a bumpy ride up back to its 52-week high near $70.

Have a great day!


Aaron Schweitzer

 

Disclosure: Goldman Small Cap Research analysts are neither long nor short these shares but may elect to purchase the stock within the next 48 hours.

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