) is set to report second quarter 2014 results today after the
market closes. Last quarter, it posted an impressive earnings
surprise of 16.28%. Let's see how things are shaping up for this
Factors to Consider this Quarter
This weight management and nutritional products company has been
delivering excellent earnings results and has outpaced the Zacks
Consensus Estimate in the last 21 quarters. Rising health
consciousness among consumers worldwide has been driving the demand
for Herbalife's products.
Last quarter, earnings were at the higher end of the company's
guidance range and also increased 18% year over year on the back of
double-digit growth in the top line. The company expects its second
quarter adjusted earnings in the range of $1.51 to $1.55 per share,
much higher than $1.41 per share earned in second quarter 2013,
which we believe is due to growing demand of the company's
Other than impressive earnings results, Herbalife's share prices
have been on a roller coaster ride due to continuous accusations by
activist investor William Bill Ackman, hedge fund manager of
Pershing Square. Ackman has been accusing the company since Dec
2012 by calling it a pyramid scheme i.e. it employs deceptive
marketing practices for improving business. Ackman believes that
the nutrition clubs run by Herbalife's distributors focus on
recruiting instead of selling products. (Read:
Herbalife Faces Another Ackman Attack
). Ackman's back-to-back allegations have prompted investigations
by the Securities and Exchange Commission, Federal Trade
Commission, FBI and at least two state attorneys general. But so
far none has taken any action. Herbalife, on its part, has been
denying the charges since 2012 and has full confidence in its
Recently, Ackman reportedly stated that he had evidence that
Herbalife is running a pyramid scheme business model. (Read:
Herbalife Shares Tumble Ahead of Ackman
). However, Herbalife's shareholders turned their backs to Ackman's
statements and reiterated confidence in the company. (Read:
Herbalife Shares Up 25% as Ackman's Accusations
The company's earnings have continued to increase despite
numerous attacks on its multi-marketing model. We expect the trend
to continue in the second quarter. Herbalife is not the only
company, which employs sales representatives to sell its products.
Other multi-level marketing companies like Nu Skin Enterprises Inc.
) also follow the same distribution model.
Our proven model does not conclusively show that Herbalife is
likely to beat earnings this quarter. That is because a stock needs
to have both a positive
and a Zacks Rank of #1, 2 or 3 for this to happen. That is
not the case here as you will see below.
ESP for Herbalife is 0.00% as both the Most Accurate Estimate and
the Zacks Consensus Estimate stand at $1.57 per share.
Zacks Rank #2 (Buy):
Herbalife's Zacks Rank #2 when combined with an ESP of 0.00% makes
surprise prediction difficult.
We caution against stocks with Zacks Ranks #4 and #5 (Sell rated
stocks) going into the earnings announcement, especially when the
company is seeing negative estimate revisions momentum.
Other Stocks to Consider
Other retail stocks that have both a positive earnings ESP and a
favorable Zacks Rank are:
Citi Trends Inc. (
), with Earnings ESP of +6.90% and a Zacks Rank #1 (Strong
Abercrombie & Fitch Co. (
), with Earnings ESP of +27.27% and a Zacks Rank #3 (Hold).
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HERBALIFE LTD (HLF): Free Stock Analysis Report
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