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Herbalife (HLF) Re-Audit Serves as 'Nail in the Coffin' for Shorts - SunTrust; PT Raised to $85

December 17, 2013 7:56 AM EST Send to a Friend
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Price: $57.71 +0.07%

Rating Summary:
    5 Buy, 3 Hold, 1 Sell

Rating Trend: Up Up

Today's Overall Ratings:
    Up: 22 | Down: 10 | New: 7
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SunTrust Robinson Humphrey analyst Michael Swartz reiterated a Buy rating and raised his price target on Herbalife (NYSE: HLF) from $78 to $85 following the successful re-audit.

"In of itself, the clean bill of health solidifies our comfort level around HLF's business model/accounting practices," Swartz comments. "However, considering PwC's intensive seven-month scrubbing-of-the-books in the face of heightened media/public scrutiny, it could serve as a nail in the coffin for the bear case."

With the audit now complete the analyst expects the company to revisit a potential leveraged share buyback/recap. "While uncertain as to the ultimate size/timing, we estimate that the company has flexibility for a buyback in upwards of $1.5bn, which could add $1+ to annualized EPS (assuming $1bn in new debt at 4-5%). We have not included any meaningful repurchases in our numbers."

More importantly, according to the analyst, the focus can return to fundamentals. "With two favorable catalysts in the span of two weeks (including the 12/3 Belgium ruling) we believe the "hair" to the story (i.e. pyramid scheme accusations) has begun to recede. As such, investor attention is likely to revert to HLF’s strong fundamentals/track-record (i.e. surpassing Street estimates 28 of past 29 quarters). Put another way, we see little reason why HLF cannot retrace to its historical valuation range (13-16x)."

For an analyst ratings summary and ratings history on Herbalife click here. For more ratings news on Herbalife click here.

Shares of Herbalife closed at $74.83 yesterday.




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