You may have heard the news this morning – Tim Ramey, who once slapped a three digit price target on Herbalife and then promptly watched the stock tank to $44, would like you to know again that he thinks Herbalife is worth $110. Not only that, he’s already making excuses for what he thinks is going to be a poor quarter for the company.
Which leads me to a very simple question: why wrap a $110 PT on this company when you think the next quarter’s earnings are going to be “extremely messy?” I’ll let you guys think about that. Perhaps it has something to do with Mr. Ramey’s longstanding friendship with Herbalife bull and Baron of Bran Flakes, Bill Stiritz.
I do, on one hand, have to give him props for his persistence. Regardless of whether or not I think it’s pure idiocy, I respect a man that sticks to his guns. On the other hand, I’m not sure if Mr. Ramey isn’t a few H’s, L’s, and F’s short of a box of Alpha-Bits – if you get my drift.
If you recall, the last time Ramey opened his mouth and called Herbalife the greatest deal in the history of the stock market, the stock promptly tanked nearly 50%, and Ramey mysteriously “changed jobs” to go work for the Sultan of Shredded Wheat himself, Mr. Bill Stiritz. That was sometime before this summer, where I did the following Herbalife technical analysis:
Since then, between POST and Herbalife, Mr. Stiritz has watched a portion of his net worth go “POOF” and vanish, as both Herbalife and Post have headed south.
The interesting thing about this morning’s $110 PT headline that (presumably) helped move the stock today, was what came to light after I read a few writeups. Despite this price target, Mr. Ramey isn’t expecting a great quarter this November. From the fine folks over at ValueWalk:
Ramey does point out that the negative press surrounding Herbalife Ltd. (NYSE:HLF) has had a negative effect, particularly because the company initiated new tighter controls in response to Ackman’s criticism. The analyst thinks these factors have slowed down the company’s growth.
He adds that the lead generation practices Herbalife was blasted for were certainly a bad thing and that the multi-level marketing company did the right thing by getting rid of them. He also said Herbalife management is wise to shut down individual distributor websites because of compliance concerns, be this will cost the company at the top line.
He also points out that currency continues to be a “meaningful drag.” His third quarter estimate is $1.45 per share for earnings, which is lower than Herbalife’s guidance. Ramey said he recognizes that the company has some “short term issues to sort out.” He suggests that the quarter could be “extremely messy” as Herbalife writes off Venezuela and moves to a cash basis for accounting there.
In addition, the same ValueWalk article says that Ramey thinks Herbalife’s business model is “above reproach”. This is in the same piece where Ramey admits that lead generation “[was]certainly a bad thing and that the multi-level marketing company did the right thing by getting rid of them. He also said Herbalife management is wise to shut down individual distributor websites because of compliance concerns, be this will cost the company at the top line.”
Hey Tim – how in the name of God do you see clearly that lead generation is bullshit, but not see that the rest of the business model is layered in thick over a foundation of pure fraud?