Herbalife Ltd. (NYSE:HLF)) is set to report FQ1 2014 earnings after the market closes on Monday, April 28th. Allegations and investigations into whether or not Herbalife, a multi level marketing nutrition company, is a pyramid scheme or not have picked up steam in the past couple months. Pershing Square Capital Management hedge fund manager Bill Ackman famously bet $1 billion against Herbalife and has since has continued to attack it calling it an illegal pyramid scheme. Throughout all of 2013 Ackman was under tremendous pressure to cover his short as Herbalife stock climbed higher and higher, but 2014 has been more kind to him. In January Senator Markey gave Ackman’s claims a vote of confidence by calling for an investigation into Herbalife and in March the Federal Trade Commission official opened an inquiry into Herbalife’s business practices. The stock has been freefalling in 2014, but earnings growth expectations are still quite bright. Here’s what investors are looking for from Herbalife on Monday.
The information below is derived from data submitted to the Estimize.com platform by a set of Buy Side and Independent analyst contributors.
The current Wall Street consensus expectation is for Herbalife to report $1.30 EPS and $1.233B revenue while the current Estimize.com consensus from 12 Buy Side and Independent contributing analysts is $1.29 EPS and $1.237B in revenue. This quarter the buy-side as represented by the Estimize.com community is expecting Herbalife to miss the Wall Street EPS by 1c per share and exceed revenue projections by a small margin.
Over the past 6 quarters the consensus from Estimize.com has been more accurate than Wall Street in forecasting Herbalife’s EPS every time and has been more accurate in predicting revenue 4 times. By tapping into a wider range of contributors including hedge-fund analysts, asset managers, independent research shops, students, and non professional investors Estimize has created a data set that is more accurate than Wall Street up to 69.5% of the time, but more importantly it does a better job of representing the market’s actual expectations. It has been confirmed by Deutsche Bank Quant. Research and an independent academic study from Rice University that stock prices tend to react with a more strongly associated degree to the expectation benchmark from Estimize than from the Wall Street consensus.
The magnitude of the difference between the Wall Street and Estimize consensus numbers often identifies opportunities to take advantage of expectations that may not have been priced into the market. In this case we are seeing a small differential on Herbalife’s earnings.
The distribution of estimates published by analysts on the Estimize.com platform range from $1.15 to $1.40 EPS and from $1.180B to $1.292B in revenues. This quarter we’re actually seeing a smaller range of estimates compared to the past 6 months.
The size of the distribution of estimates relative to previous quarters often signals whether or not the market is confident that it has priced in the expected earnings already. A narrower distribution of estimates signals more agreement in the market, which could mean less volatility post earnings.
Over the past 4 months the Wall Street EPS forecast fell from a high of $1.41 to $1.30 while the Estimize consensus drifted lower from $1.32 to $1.29. Meanwhile Wall Street reduced its revenue consensus before bringing it back up from a low of $1.225B to $1.233B while the Estimize consensus remained relatively flat ending the period at $1.237B. Timeliness is correlated with accuracy and here we see flat expectations going into the report.
The analyst with the highest estimate confidence rating this quarter is kc who projects $1.40 EPS and $1.245 in revenue. kc is ranked 33rd overall among over 4,300 contributing analysts. Over the past 6 months kc has been more accurate than Wall Street in forecasting EPS and revenue 56% and 50% of the time respectively throughout 309 estimates. Estimate confidence ratings are calculated through algorithms developed by deep quantitative research which looks at correlations between analyst track records and tendencies as they relate to future accuracy. In this case kc is making a bullish call expecting Herbalife to crush the Estimize consensus on both EPS and revenue.
Although there has been plenty of worrisome press about Herbalife in early 2014, the company’s fundamentals are still growing like a weed and expectations are high again this quarter. On Monday the Estimize community expects Herbalife to report a gain of 2c per share in EPS compared to FQ1 of last year and a 10% increase in year over year revenue.
Get access to estimates for Herbalife published by your Buy Side and Independent analyst peers and follow the rest of earnings season by heading over to Estimize.com. Register for free to create your own estimates and see how you stack up to Wall Street.