Herbalife (HLF) Not Even Close to Vemma, Price Target Raised to $100 at Pivotal Research

August 27, 2015 1:02 PM EDT
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Price: $21.56 -1.01%

Rating Summary:
    8 Buy, 4 Hold, 0 Sell

Rating Trend: Up Up

Today's Overall Ratings:
    Up: 4 | Down: 15 | New: 7
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Pivotal Research maintained Buy rating on Herbalife (NYSE: HLF) and raised its price target to $100.00 (from $90.00). Analyst Timothy S. Ramey noted differences between Herbalife and Vemma, alleged to be a pyramid scheme.

"It’s a pleasant surprise but HLF shares are behaving this morning the way we would expect (or hope), based on the FTC action against private MLM Vemma yesterday. We’ve long maintained that illegal pyramid schemes are a bit like pornography – difficult to define, but you know it when you see it. Our opinion has always been that Vemma was likely an illegal structure – it has that endless chain feature where “Affiliates” are incentivized to buy a high-priced starter kit with minimal real value, only to turn around and very quickly find two, three or four others to do the same so that they can reap a quick profit and recoup their initial “investment,” said Ramey.

"In our opinion, the FTC’s complaint against Vemma Nutrition Company for “permanent injunction and other equitable relief” filed in U.S. District Court in Arizona on August 17th but disclosed yesterday (available upon request), is completely logical and likely a slam-dunk for the FTC to win. The route of injunctive relief stops Vemma in its tracks to preserve assets, which the FTC will ultimately seize to return to harmed “affiliates.” Logic would tell the reader (and this has been our position) that if this was what the FTC does in the case of a $200 million illegal pyramid scheme, it would take the same approach in a $4.5 billion illegal pyramid scheme. If Herbalife was Vemma, it would have been closed with injunctive relief 18 months ago, not served with the CID process. With HLF shares up over 5% this morning, it is apparent that the market “gets it,” continued the analyst.

Ramey added, "We are raising our price target to $100, previously $90, or 18x 2016 EPS – a low value for a company that consistently grows top-line and EPS in double-digit rates, but perhaps reasonable given the down year in 2015. There is no change to our estimates. We see Vemma as a step to the successful resolution of the FTC cloud overhanging HLF. In our opinion, without the FTC uncertainty, HLF would trade at 20-25x EPS. Vemma further defines the FTC view of MLMs and is a welcome slap to a seemingly rouge operator. Vemma is very clearly is a different company than HLF and the FTC approach is different as well."

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 $53.33 yesterday.

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