Is Icahn’s Raising Stake in Herbalife an Answer to Ackman? – February 15, 2017


It seems activist investor Carl Icahn has no intention of stopping yet. After repeatedly increasing his stake in Herbalife Limited (HLF Free Report) , Icahn once again has expanded his stake in the company by 14.7% to 22.5 million shares.

However, it is to be noted that William Stiritz, one of the largest investors in Herbalife, cut his stake in the nutrition and weight loss company to 1.4% as of the end of the fourth quarter from 5.2% a year ago.

In Sep 2016, Icahn had asked the U.S. Federal Trade Commission (“FTC”) for permission to buy as much as 50% of the company during the CNBC Institutional Investor Delivering Alpha Conference.

Notably, Icahn, the largest shareholder in Herbalife, purchased 2.3 million shares of Herbalife in Aug 2016 and then added another 306,846 shares earlier in September. The step reflects Icahn’s confidence in the nutritional products maker despite continuous allegations by activist investor Bill Ackman who alleges Herbalife’s business model a pyramid scheme.

Ackman has been accusing Herbalife of running a pyramid scheme since Dec 2012, which involves making money by way of recruiting more salespeople rather than selling products. Such models are illegal because they eventually collapse once there are no more people to recruit.

Nevertheless, Herbalife remains upbeat in its results. The company reported better-than-expected earnings results in three of the last four quarters with an average positive surprise of 19.7%. The company raised its fiscal 2016 guidance following a positive surprise in the third quarter. The stock has gained 32.6% in the past one year, outperforming the Zacks categorized Retail-Wholesale sector which has witnessed an increase of 16% in the same time frame.

Stocks to Consider

Herbalife currently carries a Zacks Rank #3 (Hold).

One can count on better-ranked stocks including Ross Stores Inc. (ROST Free Report) , Fred’s Inc. (FRED Free Report) and The TJX Companies Inc. (TJX Free Report) , all carrying a Zacks Rank #2 (Buy) and having an expected earnings growth of 10.5%, 8% and 10.7% respectively.. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

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