Herbalife (HLF) Stock Continues to Spike Today Following Fraud Case Dismissal

Herbalife (HLF) shares continue to benefit following last week's fraud case dismissal.

Author:: Tony Owusu
Publish date:: Mar 23, 2015 11:53 AM EDT

NEW YORK (TheStreet) -- Herbalife (HLF) - Get Report shares are climbing, 8.12% to $45.52, in trading on Monday as the company's shares continue to benefit from last week's court ruling dismissing a lawsuit against the company over fraud allegations.

Investor Abdul Awad and two pension funds sued the company for losses following accusations by activist investor William Ackman that the company is actually a pyramid scheme. However, the judge presiding over the case said that Ackman's accusations alone was not sufficient evidence to prove that investor losses were due to fraud on the company's part.

The company is still liable to be sued by other investors if they can provide evidence of fraud despite last week's ruling, which has no effect on an ongoing Federal Trade Commission investigation of the company's business practices.

Herbalife stock spiked 14% in trading following last Monday's decision and have gained 34.1% since last week.

Separately, TheStreet Ratings team rates HERBALIFE LTD as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

"We rate HERBALIFE LTD (HLF) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its expanding profit margins and growth in earnings per share. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, weak operating cash flow and a generally disappointing performance in the stock itself."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

The gross profit margin for HERBALIFE LTD is rather high; currently it is at 53.23%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 9.11% trails the industry average.
HERBALIFE LTD has improved earnings per share by 5.2% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, HERBALIFE LTD reported lower earnings of $3.39 versus $4.91 in the prior year. This year, the market expects an improvement in earnings ($4.28 versus $3.39).
HLF, with its decline in revenue, underperformed when compared the industry average of 8.0%. Since the same quarter one year prior, revenues fell by 10.7%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Personal Products industry. The net income has decreased by 16.4% when compared to the same quarter one year ago, dropping from $123.54 million to $103.29 million.
Net operating cash flow has significantly decreased to $61.90 million or 68.39% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
You can view the full analysis from the report here: HLF Ratings Report

Must Read: Warren Buffett's Top 25 Stocks for 2015