Herbalife (HLF) FTC Settlement a 'Total Defeat' for Short Camp; Sees Massive Short Squeeze - Pivotal's Ramey

Pivotal Research analyst Timothy Ramey reiterated a Buy rating and $90 price target on Herbalife (NYSE: HLF) after the company reached a long-awaited settlement with the FTC.

The company agreed to pay a $200 million fine to the FTC and $3 million to the Illinois Attorney General. The company will
adopt a two-tier membership structure – a structure HLF floated in the Spring of 2013 as a possibility. It will need to show that 80% of product sales are to legitimate end users.

Ramey notes the FTC changes are applicable in the U.S. only, which accounts for 20% of Herbalife sales.

Separately Herbalife has altered its agreement with Carl Icahn to allow him to increase his holding to 34.9% - adding 15 million shares to his current holding of 17 million.

"This deal is consistent with our long-held view that while the company has had certain historic weaknesses in its compliance and oversight, it is a legal and ethical business model with the best-in-industry compliance function today," Ramey said. "This is a total victory for Herbalife shareholders and a total defeat for the short camp."

While WSJ reports that the public float is 86.2 million shares, they view the real short as a percentage of the immediate float to be about 64% - prime for a massive short squeeze. "Having said that, we are not assuming that Pershing Square covers right away – we are relatively certain they can post additional collateral required by a higher price – we kinda hope they don’t cover – could hasten the move to $150 for HLF shares."

Commenting on implications for the stock, he said: "Leaving aside the potential for a short squeeze that could take the stock to breathtaking levels in the short run, we believe the deal with the FTC is effectively the “all-clear” for HLF and indeed, USANA Health Sciences (USNA – BUY - $122.26) PT $160; and Nu Skin Enterprises (NUS – BUY - $49.91) PT $60. Thus we expect the stock to re-price rather rapidly to the $80-$100 level. There is no change to our estimates or $90 price target – we will have to see where the trading day takes us on this one."

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 $59.36 yesterday.

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