Herbalife: A Devastatingly Perfect Storm that Could Send Shares Under $30

  • Quoth the Raven Research continues to believe Herbalife is a strong sell with downside of more than 46.3% before the end of 2017 and further downside in following quarters
  • The potential impact of a coming nation-wide documentary has been significantly underestimated and may cause an unprecedented public relations nightmare for the company that it may permanently have trouble recovering from
    • For comparison, Blackfish, a similar style of critical documentary, drove SeaWorld’s stock price down 60% leading up to its release. A critical nationwide 60 Minutes expose on Lumber Liquidators helped drive its stock price down more than 80% in the months following the report
  • Carl Icahn has a history of selling his stake in companies into buybacks.
    • In 2016 he sold $500m in shares into Nuance’s buyback. In 2012, he sold $1.17 billion in stock back to Motorola Solutions. I believe Mr. Icahn may consider exiting his Herbalife position before the documentary’s March 17, 2017 release or before the FTC’s sanctions on Herbalife’s business model take effect in May 2017
  • The company’s largest growth market, China, appears to be stalling and a newly disclosed SEC Foreign Corrupt Practices Act investigation and a new joint venture with a China-based company raises questions about whether the company is still on solid footing in its largest market
  • I believe the company’s true fundamentals continue to deteriorate much more than the company’s Non-GAAP numbers and accompanying constructed narrative lead on
  • I believe the only publicized sell side analyst for the company (who is also an Herbalife distributor) continues to lead shareholders to the slaughter with an absurd $90 price target

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