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Herbalife Ltd. (HLF) to Pressure Bill Ackman by Possible Stock Buybacks


Herbalife to buy back its stock following FTC probe

Herbalife Ltd. (NYSE:HLF) is scheduled to release its financial results for the second quarter of fiscal year 2016 after market closes on Wednesday, April 3. The global nutrition company considers pursuing stock Buybacks to pressure Bill Ackman, who has put a Short rating on the stock since FY12.

In accordance with its decision to buy back its stock, the company is said to have signed an agreement with Bank of America and Merrill Lynch to buy back its common shares worth $266 million. Buyback is one of the many strategies that the company has considered to oppose short seller Bill Ackman. Other important options under the company’s umbrella include capital structuring and cash management.

This is not the first time that the company is opting for the Buyback option, as the last time it used this option was in fiscal year 2014. From FY07 to FY14, the company has approximately used $3.7 billion in repurchasing its stock. However, the last time it took this approach, it stopped paying dividends and instead sold convertible bonds to finance its efforts.

Although the company last bought it shares back in FY14, Pershing Square Hedge led by Mr. Ackman has been short on the stock since FY12. Ever since, the shares have increased $15 in value. The stock has gained 60% from recent lows of $42 that it reached earlier in FY16.

This move came in after the company’s settlement with US Federal Trade Commission. Under this, the nutrition provider agreed to pay a sum of $200 million and made several changes to its business practices. The US regulator claims that the company deceived consumers with its scheme get-rich-quick promises. Hedge fund manager, Bill Ackman declared $6.3 billion company a pyramid scheme and insisted that it should be shut down. He added that the company must consider restructuring and should properly state as to how much money its members are likely to make, instead of quoting misrepresentations.

Despite this, the company is full of surprises. In the last quarter, its earnings increased by 29.35% and has managed to beat the estimates in the last four quarters. In the following quarter, it expects the sales figure to go up by 3% and volume to rise between 1.5-4.5%. The company has issued guidance for earnings within the range of $1.10-1.20. The Street expects the company to beat on its bottom line and has issued an estimate of $1.27 in EPS. This increase is credited to improvements in key markets including Brazil, US, and Mexico as a results of strategic decisions under taken by the management.

Following the buyback, Investors and traders might raise questions regarding how much more the company can squeeze its stock through buybacks to further improve its valuation. The overall performance of the company remains a question to many investors. As of today, California-based company’s shares are up 1.5% over the last close. Analysts remain bullish on the stock and FactSet Fundamentals maintain one Buy and three Hold ratings on the stock. The 12-month median price target of the stock is set at $78.

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08/03/2016 |

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