) hit a 52-week high of $78.50 on Dec 17 and eventually closed at
$75.76. The increased momentum in the shares came after
Herbalife's new UK-based auditor PricewaterhouseCoopers (PwC)
announced the completion of re-audit of Herbalife's financial
statements of more than three years and found no material changes
to its prior financial statements.
In fact, shares of this nutrition company have been rising
since it reported impressive third-quarter results on Oct 28.
Shares of this Zacks Rank #2 (Buy) company closed at $75.76 on
Dec 17, with the share price soaring 140.9% year-to-date.
The company's long-term estimated earnings per share (EPS)
growth rate is 15.32%. Average volume of shares traded over the
last three months came in at approximately 2,668K.
Re-Audit of Results
On Dec 16, PwC completed the re-audit of the Herbalife's
financial records for fiscal years 2010, 2011 and 2012 as well as
part of 2013, and did not find any material changes in the
financial statements. The re-audit was due to the company
engaging PwC as its new independent auditor. Herbalife's former
independent auditor, KPMG LLP ('KPMG') resigned in May following
insider trading allegations against an executive of the
accounting firm and not because of any discrepancies in
Herbalife's financial statements or its accounting practices. The
re-audit also removed the uncertainty of running a pyramid scheme
The company had been facing accusations from hedge fund
manager William Ackman and the Belgian consumer organization
Test-Aankoop regarding its pyramid scheme business model i.e.
deceptive marketing practices employed for improving business.
Per the accusation, through such a scheme, the company earns most
of its money by recruiting new sales people and not from the
products that it sells. However, on Dec 3, 2013, a Belgian court
quashed the allegations and stated that the company's sales model
complied with Belgian law.
Activist investor Bill Ackman also criticized Herbalife for
misguiding investors by distorting its financial statements. In
fact, Ackman argued that it is not the role of an auditor to
prove that Herbalife is a pyramid scheme and instead will be
proved by the regulators. On the other hand, another investor
Carl Icahn has been supporting Herbalife and has increased his
stake in the company.
Herbalife has been consistently denying Ackman's claims and
defending itself with strong results. Moreover, since its
impressive third-quarter earnings reported on Oct 28, 2013, the
company's share price increased 12.1%. Earnings of $1.41
surpassed the Zacks Consensus Estimate by 23.7% and the
prior-year earnings by 44%. Revenues of $1.2 billion also beat
the Zacks Consensus Estimate by 1.59% and grew 19% from the
year-ago quarter. In fact, the company posted a positive
four-quarter average earnings surprise of 15.46%. With 13.0%
volume growth in the quarter, we believe that solid demand for
its products (especially weight-management products), product
innovations and numerous growth strategies will drive the stock
Other Stocks to Consider
Some other stocks worth considering in the retail sector
CVS Caremark Corporation
Best Buy Co. Inc.
). While Conns holds a Zacks Rank #1 (Strong Buy), CVS and Best
Buy Co. carry a Zacks Rank #2.
BEST BUY (BBY): Free Stock Analysis Report
CONNS INC (CONN): Free Stock Analysis Report
CVS CAREMARK CP (CVS): Free Stock Analysis
HERBALIFE LTD (HLF): Free Stock Analysis
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