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Dan Loeb: "Herbalife’s Shares Are Worth $55-$68" Or Even "Well Above"

Tyler Durden's picture




 

Update: this is just getting better and better: flashing headlines that the SEC has opened an inquiry into Herbalife. Dow Jones adds that inquiry may not result in action. Stock slides on the news, however following speculation that the SEC may (or rather should) be investigating the various massive puts in HLF stock before the Ackman presentation in mid-December, it bounces. Total chaos, and all very exciting.

One guy (whose positive P&L in 2012 was primarily thanks to the gap lower in HLF in the last two weeks of 2012, since filled entirely and then some), says $0. Another guy, whose nearly $10 billion hedge fund was up 30% in 2012, says over $60. Whom do you trust? As far as we are concerned, the second Tilson goes long, we dump everything.

From Loeb's letter:

The pyramid scheme is a serious accusation that we have studied closely with our advisors. We do not believe it has merit. The short thesis rests on the notion that the FTC has been asleep at the switch, missed a massive fraud for over three decades, and will shortly awaken (at the behest of hedge fund short seller) to shut down the Company. We find this thesis to be preposterous, particularly since the FTC has been sensitive to frauds of this kind. Since 1997, the FTC has brought 13 separate cases against alleged pyramid schemes.

 

While the short seller’s presentation was lengthy, it presented no evidence to show that Herbalife has crossed a line that would compel regulators to shut it down. Indeed, there was very little “new” news in the presentation and when pressed in later interviews, even the short seller conceded that the FTC was not looking at Herbalife’s practices. In our experience, expert regulators like those at the FTC do not respond to sudden pressure from hedge fund whistleblowers by acceding blindly to their demands. Finally, even if there were some regulatory intervention that changed how the company does business, we are comforted by the fact that 80% of Herbalife’s revenues come from overseas.

 

If management were to deploy its existing $950 million buyback authorization in the $40-45 range (only taking leverage to approximately 1.5x), we estimate that run-rate EPS for 2013 could be $5.50-5.70 using the reduced share count. Applying a modest 10-12x earnings multiple suggests Herbalife’s shares are worth $55-$68, offering 40-70% upside from here and making the company a compelling long investment for Third Point. Given that the Company has historically traded more in the 12-14x range (and traded at 16-20x earnings through much of 2011 and early 2012), the opportunity for the Company to tell its side of the story tomorrow at its Analyst Day in New York, and the significant short interest, we believe shares could even trade well above our current price target.

So.... who is short and sweating profusely? These guys:

Fulll Loeb letter:

h/t MarketFolly

 

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Wed, 01/09/2013 - 15:41 | 3137687 fightthepower
fightthepower's picture

Fuck you Bernanke! 

Wed, 01/09/2013 - 15:44 | 3137700 I think I need ...
I think I need to buy a gun's picture

let loeb and ackerman eat each other although they are probably together as the chart says collapse. Sit back and enjoy the big boys all eat each other, the little people are all long gone

there may not be any sharks even left it may just be whales

Wed, 01/09/2013 - 15:56 | 3137780 Divided States ...
Divided States of America's picture

Ackman and Loeb are both jews, one of them will win big...though usually they may both turn out winners in these types of situation. The loser is Whitney...hes a non Jew, like us. He's a pure sheep, being used by the jews to make more money off. And like his, our only outcome is lose lose lose.

Wed, 01/09/2013 - 16:48 | 3138084 retiringteach
retiringteach's picture

you are a schmuck-does that make YOU jewish?

 

Wed, 01/09/2013 - 16:49 | 3138096 otto skorzeny
otto skorzeny's picture

call me whatever the fuck you want but NEVER call me a Jew

Wed, 01/09/2013 - 17:39 | 3138362 Squid Vicious
Squid Vicious's picture

If ackman's fund covered any shares after his dog-and-pony slide-show, he should be sent to the gas chamber immediately...

Wed, 01/09/2013 - 16:51 | 3138104 Thisson
Thisson's picture

You're getting up-arrows for this bigoted crap?  WTF difference does it make what their religions are?  They are either generating positive returns or they are not. 

Wed, 01/09/2013 - 17:25 | 3138303 Divided States ...
Divided States of America's picture

Are you an effin newb in the financial industry?? Jews do well in this field because of their connections and expert network to influential people in power, namely other Jews. They got Bernanke, Fink, Gensler and now Lack Jew getting sworn in tomorrow. If you got this set of Jew Crew on your side, even a monkey named Joshua and wearing a kippah can make a ton of money...and that money is most likely from your pocket.

 

Wed, 01/09/2013 - 19:15 | 3138779 I am a Man I am...
I am a Man I am Forty's picture

Don't put me in the same category as Whitney Tilson, that guy is the worst investor/trader I have ever laid eyes on.

Wed, 01/09/2013 - 20:54 | 3139113 Buck Johnson
Buck Johnson's picture

Herbalife is a pyramid scheme big time.  If I was the SEC and govt., I would seriously investigate this stem to stern to make sure.  Because the ones saying it's not are whales who put alot of their hedge fund money into it and don't want to lose it.  This is a pyramid scheme and as they always say, if it's to good to be true, it probably is.  Don't get me wrong, the whales know it's a pyramid scheme they are mad that the guy outed it before they could make their money and run.

Wed, 01/09/2013 - 15:44 | 3137707 hankwil74
hankwil74's picture

Herbalife is a pyramid scheme like Amway is a pyramid scheme.  Both are legitimate businesses... just businesses in a non-traditional way.

Wed, 01/09/2013 - 16:07 | 3137837 Texas Ginslinger
Texas Ginslinger's picture

Scamway products are decent quality.

Herbalife I know nothing of.

But why the thread..??

Trying to pound a few more nails in Tilson's coffin..??

How do you know Tilson is not doing the exact opposite of what he claims he's doing..??

Wed, 01/09/2013 - 15:48 | 3137726 rsnoble
rsnoble's picture

What else is new? Bash bash bash bash get everyone in short and then ass fuck them raw.  And it works every fucking time.

I love the ones that see a $100 stock drop to $20 and then go all in short convinced it's worth 0.  Some of these idiots deserve to be broken.

Wed, 01/09/2013 - 15:54 | 3137766 bankonthebust
bankonthebust's picture

I find it funny that Ackman's whole short thesis evolves around the company being a "pyramid scheme". Does he not realize that the whole system he operates in is a pyramid scheme?

Wed, 01/09/2013 - 16:16 | 3137883 Divided States ...
Divided States of America's picture

I think Ackman's whole short thesis on HLF was that Einhorn thinks its a fraud...his fund's strategy should be renamed "Piggy backing off other more successful managers analysis"

Wed, 01/09/2013 - 16:59 | 3138149 Freddie
Freddie's picture

These types of hedge fund managers - Ackman, Loeb, Einhorn, Cramer, Stevie Cohen are such dog shit.  They are like *****ng scam artists.

James Chanos, Ray Dalio, Hugh Hendry, Kyle Bass are real hedge fund managers.  The bond guy in LA is pretty good too. 

These other clowns are either valuation pump and dumpers, Berkshire investors (total joke and Charlie Mungo please go take a dirt nap) or momo Apple buyers/HFTscammers/et al. 

Wed, 01/09/2013 - 15:55 | 3137774 laomei
laomei's picture

Lol, fake shit that doesn't do anything, being sold pyramid-scam style.  Yes, this is totally worth money and is in no way a scam.

Wed, 01/09/2013 - 16:00 | 3137808 Tyler Durden
Tyler Durden's picture

Purists may consider shorting the piggest pyramid/ponzi scheme of all - the US government. 

Oh wait.

Wed, 01/09/2013 - 16:11 | 3137864 negative rates
negative rates's picture

Packin up the plantation here.

Wed, 01/09/2013 - 16:52 | 3138112 Freddie
Freddie's picture

No no Tyler.  The USSA has trillion dollar magic obama platinum coins.  Better than gold and skittles.

Wed, 01/09/2013 - 16:05 | 3137835 kaa1016
kaa1016's picture

Took a shot on some calls earlier, then sold them a little while later. These guys can play in this one especially after looking at that $3 drop. On to easier plays like AAPL puts.

Wed, 01/09/2013 - 16:06 | 3137836 ReeferMac
ReeferMac's picture

4-bucks in one 2-minute candle?

THAT is how you run the stops gentlemen.

Wed, 01/09/2013 - 16:29 | 3137971 sockratte
sockratte's picture

well, if you dont know how to adapt your stop to volatility...

Wed, 01/09/2013 - 17:42 | 3138394 Herd Redirectio...
Herd Redirection Committee's picture

Please elaborate.

Wed, 01/09/2013 - 16:08 | 3137852 Joe Davola
Joe Davola's picture

Dow Jones adds that inquiry may not result in action.

You don't say!

Wed, 01/09/2013 - 16:12 | 3137865 Temporalist
Temporalist's picture

Herbalife?  That is so 1980s.  Where's my BathSaltsLife?

Wed, 01/09/2013 - 16:14 | 3137877 buzzsaw99
buzzsaw99's picture

luv the hubris of the short sellers. damn the torpedos.

Wed, 01/09/2013 - 16:21 | 3137917 adr
adr's picture

Herbalife is a business that exists purely through distribution by Herbalife Vendors. One may be your neighbor. Herbalife also self reports revenue, since there is no revenue from selling outside the internal distribution model. Herbalife vendors much purchase all product from Herbalife corporate and resell to friends, family, or whoever else is in their predetermined sales territory.

I would say that is the definition of a pyramid scheme. One of the scam hologram bracelet corporations was shut down for running a pyramid MLM scheme just like Herbalife.

Herbalife also has a headquarters complex larger than Toyota, Honda, or just about any other corporation located in Torrance, CA. The complex even rivals that of Google and Apple. I would say Herbalife's business has nothing to do with heath products.

They claim they sold $3.4 billion worth of heath care goods through an internal distribution MLM model? Ask yourself if you've ever seen a Herbalife product or a Herbalife distributor. The company is supposedly has twice the sales of Under Armour. HLF has 1/4 the sales of Nike. I'm pretty sure everyone reading this has seen someone wearing Under Armour. How can Herbalife be twice the size without anyone knowing about it. Even in the MLM space everyone has heard of Avon and Amway. I have not met a single person on the street that knows anything about Herbalife.

 

Wed, 01/09/2013 - 16:34 | 3138007 azzhatter
azzhatter's picture

I actually did know an old crackhead lady that sold herbalife. She has bumper stickers all over her car promoting the scam too. Don't know if she had any customers. Last I heard she was in prison. And she supposedly blew the local cops regularly to protect her crack business. She should have run for congress

Wed, 01/09/2013 - 16:37 | 3138029 adr
adr's picture

If you follow the crack, you probably will find the actual Herbalife business model. If someone told me they were a front for a Mexican drug cartel, I would say, yep, not surprised.

Wed, 01/09/2013 - 16:41 | 3138050 retiringteach
retiringteach's picture

wrong-here boca raton fl -pretty big

 

Wed, 01/09/2013 - 17:00 | 3138127 Freddie
Freddie's picture

wrong-here boca raton fl -pretty big

What is pretty big in Boca? Herballife? Crackheads? Dishonest hedgefund managers? Scams? High end hookers at the Boca Hotel during the Wall Street spring vacations?  All of the above?

Wed, 01/09/2013 - 17:20 | 3138269 Dr Benway
Dr Benway's picture

I would say it becomes a pyramid scheme when joiners are told they will make money by recruiting new members and not thru sales, and those new members in turn are told the same thing. Product is at best an afterthought, the focus is on the pyramid of recruitment. Have seen many iterations of this, product can be plastic dog poos or incense sticks or anything.

Wed, 01/09/2013 - 16:22 | 3137921 LongSoupLine
LongSoupLine's picture

Fucking hedge funds have devolved down to the equivalent of a flesh eating virus. Thanks to fucker supreme, Bernanke, and his band of bank fucktards, this is the end playing out.

Fuck all those fuckers...die painfully assholes.

Wed, 01/09/2013 - 16:27 | 3137961 sockratte
sockratte's picture

bought some last week... make or break

Wed, 01/09/2013 - 17:08 | 3138198 Dr Benway
Dr Benway's picture

You bought HLF or their product? lol

Wed, 01/09/2013 - 17:45 | 3138411 Squid Vicious
Squid Vicious's picture

bought it all the way down from 28 to the low tick (24.25) then I ordered shake mix online... mostly cellulose filler, like the old Slimfast shakes... garbage, but what a short squeeze!

Wed, 01/09/2013 - 16:36 | 3138022 adr
adr's picture

I would like to add that I work for a foreign company based in Torrance, CA. When the president of the company came in to visit the American division, he drove by Herbalife's headquarters. I then learned when he got back home, he looked up Herbalife and decided the MLM model would be a direction he would like to take the company at home. I think he contacted his Swiss Banker friends and they clued him in to the size of the accounts of Herbalife's management team.

My CEO does visit Switzerland often even though there is no division of the company there. Hmm I wonder. In a meeting one time I noticed a very nice watch  with a GP on his wrist, I said to him, "Is that a Girard Perrequax, got that in Switzerland maybe?" He looked at me shell-shocked. Like I caught him sleeping with a whore.

Must be nice to live in the CEO realm.

Wed, 01/09/2013 - 17:07 | 3138189 Dr Benway
Dr Benway's picture

Hahaha this is all too fucking funny.. Ahhh so fractal.

Just as the product is irrelevant for pyramid MLM scams (I have seen ones where the product literally is perfumed air, claiming miracle health benefits based on the necessity of oxygen for cells), so the company is completely irrelevant for the HLF share price.

It doesn't matter the slightest at this point what HLF is or is not, no one piling into HLF is saying anything about the actual product. LOL.

Wed, 01/09/2013 - 17:22 | 3138277 Pedantic Rube
Pedantic Rube's picture

Only 20% of sales are in US. Soooo how do you get brazil, Mexico, and India to stop selling? The mere fact that ackmans evidence isn't indisputable means it will take a long time in court, if it's ever taken to court. Here comes the squeeeezzzzeeeee

Wed, 01/09/2013 - 17:56 | 3138469 Bruce Krasting
Bruce Krasting's picture

Tyler, Thank you for continuing the Tilson angle to this story. We all need a laugh once in awhile.

Guys have been getting their faces beaten-in with bad stock calls for ever. But it was never public like this. You're reporting it in "real-time". 

Must feel like a hot poker.

Wed, 01/09/2013 - 18:25 | 3138602 Squid Vicious
Squid Vicious's picture

I have to say he really showed his colors when he threw in the towel on his NFLX short... even though he was 100% right... it was somewhat demoralizing for other shorts like myself. Hindsight is 20/20 of course but the more I see of this guy's calls he should be on Cramer's show every night

Thu, 01/10/2013 - 01:03 | 3139806 Lord Of Finance
Lord Of Finance's picture

I turned on cnbc for some comic relief and saw these asshole fund managers saying they were going all in to herbalife as well as stocks. CNBC should run a laugh track whenever these tools utter their investment strategies. They also said that APPLE will surge and gain 10% over their September highs. Cue laugh track: HAHAHAHAHAHA

Thu, 01/10/2013 - 01:47 | 3139893 pbppbp
pbppbp's picture

The board is so packed with anti-semites and racists I thought I was on infowars for a second. You bigots are pathetic.

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