Herbalife Ltd. (NYSE:HLF) is set to report FQ4 2013 earnings after the market closes on Tuesday, February 18th. Herbalife is a multi-level marketing company which sells nutrition, weight management, and skin-care products. Last year Herbalife was the topic of the most entertaining segment in the history of CNBC. 2 billionaire hedge fund managers, Carl Icahn and Bill Ackman, were hurling insults at each other on live television. The showdown began in the wake of Bill Ackman unveiling his short position and laying forth his argument that Herbalife is an illegal pyramid scheme, investor Carl Icahn who owned shares of the company was furious. Whether Herbalife is a scam or not, the company is making billions of dollars and expanding rapidly. Compared to last year, Wall Street is expecting HLF to increase its quarterly revenue by over $200 million or roughly 20%.
However, recently Senator Edward Markey has called for the SEC to investigate Herbalife on pyramid fears. Sen. Markey has indicated that he will give the company until February 28th to respond. Regardless of the accusations, Herbalife is set to report another great period of growth on Tuesday, here's what investors are expecting.
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 HLF to report $1.24 EPS and $1.269B revenue, while the current Estimize.com consensus from 19 Buy Side and Independent contributing analysts is $1.26 EPS and $1.245B revenue. This quarter the buy-side as represented by the Estimize.com community is expecting HLF beat Wall Street on profit but report less-than-expected revenue.
Throughout the previous 5 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 on 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 up to 69.5% more accurate than Wall Street, but more importantly it does a better job of representing the market's actual expectations. It has been confirmed by 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 larger differential on revenue compared to most quarters.Click to enlarge
The distribution of estimates published by analysts on the Estimize.com platform range from $1.12 to $1.50 EPS and $1.180B to $1.350B in revenues. This quarter we're seeing a large distribution of estimates for HLF.
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 wider distribution of estimates signaling less agreement in the market, which could mean greater volatility post earnings.Click to enlarge
This quarter the Wall Street EPS consensus rose from $1.15 to $1.24 while the Estimize consensus decreased from $1.34 to $1.26, but increased at the end of the quarter. Over the same stretch of time Wall Street raised its revenue expectation from $1.219B to $1.269B and the Estimize community elevated its expectation from $1.232B to $1.245B. Timeliness is correlated with accuracy and rising analyst expectations going into an earnings report are often a bullish indicator.
The analyst with the highest estimate confidence rating this quarter is WallStreetBean who projects $1.31 EPS and $1.275B in revenue. In the Winter 2014 season, WallStreetBean is rated as the 20th best analyst and is ranked 10th overall among over 3,850 contributing analysts. 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 WallStreetBean is expecting Herbalife to beat the Estimize consensus on both EPS and revenue.
This quarter contributing analysts on the Estimize.com platform are expecting HLF to report solid growth and beat Wall Street's forecast on EPS. However, the Estimize community also predicts that Herbalife will fail to meet the revenue target set by the Street, something they haven't done in the past 2 years. While the expectations for Herbalife's growth are lofty, the pyramid scheme accusations may be the more important story to watch.
Disclosure: No positions