Here's a weight-loss product that helps slim bulging waistlines
but can fatten your trading portfolio.
is a leading weight management company that sells diet shakes,
snacks and nutritional supplements.
Nearly two-thirds of Americans currently battle obesity, and the
demand for weight-loss products is growing. From 2009 to 2010, the
global weight loss product market is expected to increase sales
+19%, to more than $69 billion.
It's not just Americans who are trying to slim down. The World
Health Organization estimates that about a third of all adults (age
14 and up) that compromise the total world population of 6.8
billion people are overweight . That means the potential market for
HLF's products is roughly 1.4 billion people. In five years, the
number of overweight adults is expected to increase to 2.3 billion,
a growth of almost +65%.
For Herbalife, the worldwide obesity epidemic adds up to
potentially large profits. The global network marketing company
sells its products in 72 countries through a worldwide network of
1.9 million independent distributors.
Technically, Herbalife is appealing. The stock has been in a steady
uptrend since March 2009.
In March 2010, HLF broke its major downtrend line that had been
forming for more than two years, since March 2008.
And just last week the stock bullishly broke out of a second
ascending triangle formation. This pattern was created by the major
uptrend line from March 2009 and long-term, historical resistance
The stock is now again approaching its all-time high of $52.78,
which it hit in early May 2010, after strong first-quarter results.
If HLF can pierce its upper Bollinger band, currently intersecting
at $50.77, it is likely to reach its May peak and could go much
Based on the
-- which is calculated by adding the height of the triangle to its
break-out level -- Herbalife could eventually reach a target of
roughly $71 ($48 - $25 = $23; $23 + $48 = $71).
The stock is above both the rising 10- and 30-week moving averages.
The 10-week moving average acts as an initial base of support and
intersects at $46.75. The 30-week moving average, which intersects
at $43.56, is just above a key support level, dating back to March
The indicators are mostly bullish.
appears to be on the verge of giving a buy signal. The MACD
histogram is ascending toward positive territory.
relative strength index (
has been in a major uptrend since December 2008. At 59.5, it is not
highly yet overbought.
Stochastics has just given a buy signal and confirms that the stock
is not overbought.
With growing worldwide demand for its weight-loss products,
Herbalife shows strong future revenue and earnings growth
On May 4, the company reported upbeat first-quarter 2010 results.
Revenue for the period increased +18.6% to $618.6 million, compared
with $521.7 million in the year-ago quarter. Higher sales volumes
in the United States, particularly within the Hispanic market,
For the upcoming second-quarter, to be reported on August 2,
revenue is expected to increase +12.7% to $644.7 million, compared
with $571.8 million in same period a year ago.
For the full 2010 year, the eight analysts who follow the company
believe revenue will increase +11.2% to $2.6 billion, compared with
$2.3 billion in the 2009 year.
By 2011, as demand for weight loss products continues to increase,
revenue should grow an additional +6.5% to $2.8 billion.
Earnings growth is equally as robust. In the first-quarter of 2010,
earnings increased +44% to $0.98 per share, compared with $0.68 in
the first-quarter of 2009.
For the upcoming second-quarter, the company has issued upbeat
earnings guidance of $0.89-$0.92 per share. This represents at
least an +8% increase compared with the year-ago quarter.
For the full 2010 year, Herbalife has raised its earnings guidance
to $3.80 - $3.90 per share. Management initially expected to post
earnings between $3.58 - $3.70 per share. This updated estimate
represents at least a +6.5% gain compared with the year-ago period.
Increased sales, especially in the Asian and North American
markets, are driving expected growth.
By 2011, analysts expect the company will achieve +18% earnings
growth, with net profit per share reaching $4.37.
Despite strong growth projections, the company remains attractively
valued. Herbalife has a trailing
price-to-earnings ratio (P/E)
, the company's
price/earnings-to-growth ratio (
(P/E divided by growth rate) is 0.75 (14.2/18.9). Any number under
one is considered good value.
return on equity (
is an incredible 66.3%. In comparison, the S&P's
The company also pays a yearly
of $0.80 per share. At current prices the company pays a small
dividend of 1.7%.
As further evidence of the company's financial health, Herbalife
recently announced a $700 million expansion to its $300 million
share repurchase program. By 2014, the company plans to repurchase
$1 billion of its shares. It has so far repurchased $100 million in
shares. The share repurchase program should also help support the
Action to Take -->
Given the company's financial health, attractive valuation, strong
growth outlook and positive technicals, I believe Herbalife is well
positioned to go higher.
Trade of the Week
readers, the free weekly trading letter I co-write with trading
expert Mike Turner, a heads-up on Herbalife before the market
opened this week. I set my target at $62.95, although according to
the measuring principle, the shares may go higher. To get further
details on the trade and receive our free analysis each week, you
go here to sign up
Chief Trading Expert
Disclosure: Neither Melvin Pasternak nor StreetAuthority, LLC
hold positions in any securities mentioned in this article.
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