This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Herbalife Defenders Get Personal With Ackman, Shorts

NEW YORK ( TheStreet) - In defending 'Buy' ratings for Herbalife (HLF - Get Report), Wall Street analysts are getting personal with William Ackman, the head of Pershing Square Capital Management, who's just unveiled a 334-page presentation on why he feels the supplements maker is a pyramid scheme worth $0.

Notably, in the wake of Ackman's presentation that Herbalife is a multi-decade pyramid scheme, analysts at Cannacord Genuity and B. Riley & Co. are comparing the sometimes activist investor to Barry Minkow, a convicted fraudster who was previously the company's most vocal short in 2007 and 2008.

Meanwhile Timothy Ramey, an analyst at D.A. Davidson & Co., argues Ackman doesn't understand the popularity of Herbalife's weight loss products because he hails from Chappaqua, N.Y., an upscale New York suburb that may be sheltered from the health concerns of the ordinary public.

[Currently, Minkow, who also was a vocal critic of multi-level marketing company <b>Nu Skin</b> <span class=" TICKERFLAT">(<a href="/quote/NUS.html">NUS</a><a class=" arrow" href="/quote/NUS.html"><span class=" tickerChange" id="story_NUS"></span></a>)</span>, is serving a 5-year prison sentence for conspiring to manipulate the stock of homebuilder <b>Lennar</b> <span class=" TICKERFLAT">(<a href="/quote/LEN.html">LEN</a><a class=" arrow" href="/quote/LEN.html"><span class=" tickerChange" id="story_LEN"></span></a>)</span>]

Ackman has caused an over 35% stock drop in Herbalife after disclosing to CNBC on Dec. 19 that he is short the company's shares and feels its multi-level marketing arrangement is more of a fraudulent pyramid scheme than a multi-billion dollar retail business.

Herbalife chief executive Michael O. Johnson took to the network's airwaves shortly thereafter to mount a vigorous defense against Ackman's allegations and called the short position "market manipulation," but he was unable to stem share losses that continued on Thursday as Pershing Square detailed the investment at the Ira Sohn Conference. "Herbalife is not an illegal pyramid scheme," the company said in a Thursday statement.

The company also said on Friday it will conduct an analyst day on the week of Jan. 7 to respond in detail to "the distorted, outdated and inaccurate information contained in Pershing Square's presentation." While Herbalife appears to be mounting a defense to Ackman's short, its shares continue to drop, falling over 19% in Friday trading.

What's interesting is how little weight analyst 'Buy' ratings and multiple defenses of Herbalife share recommendations have had on markets in the wake of Ackman's presentation. Meanwhile, personal attacks against Ackman stand out, given the hedge funder's otherwise strong market reputation. Ackman's recently won proxy a battle against Canadian Pacific (CP), participated in the IPO of Burger King (BKW) and led a still-uncertain overhaul of J.C. Penney (JCP).

"The public allegations are the challenge to investor sentiment rather than a realization of an argument that the business model isn't sustainable," writes Cannacord Genuity analyst Scott Van Winkle, in a Dec. 21 note to clients addressing Ackman's presentation.

"The last aggressive short-seller, Barry Minkow, argued five years ago, with just as great a level of detail and equal vigor, that this business model was unsustainable. Five years later, Minkow is in prison for securities fraud and Herbalife sales are nearly double the prior level," adds the analyst, who maintains a 'Buy' rating and $76 a share price target.

Van Winkle notes that the business has survived previous scrutiny, including a Securities and Exchange Commission inquiry into the validity of companies with multi-level marketing arrangements. "We see no question as to whether [Herbalife] offers significant value at current levels. The question is when the catalyst will materialize to change the sentiment," Van Winkle adds.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
HLF $45.01 0.00%
AAPL $94.02 0.00%
FB $104.07 0.00%
GOOG $683.57 0.00%
TSLA $162.60 0.00%


Chart of I:DJI
DOW 16,204.97 -211.61 -1.29%
S&P 500 1,880.05 -35.40 -1.85%
NASDAQ 4,363.1440 -146.4150 -3.25%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs