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After the close on Monday night, Herbalife (NYSE:HLF) reported earnings that solidly beat estimates. This stock has been under a lot of pressure as analysts have questioned distributor payment models. The independent distributor model will likely remain under question for a while. See the recent conversation on CNBC with a bullish analyst discussing the complex distributor model.

The company is a global nutrition company that sells weight-management, nutrition, and personal care products intended to support a healthy lifestyle. Herbalife products are sold in 83 countries to and through a network of independent distributors.

The company easily beat estimates and guided up for the rest of 2012. It announced an approved $1B stock buyback showing confidence in the low stock price. The question will be whether analysts have regained confidence in the company.

Q2 2012 Highlights

The company reported the following highlights for Q2 2012:

  • Second quarter volume points of 1.2 billion increased 23% with increases in each of its six regions compared to the prior year period.

  • Second quarter EPS of $1.10 increased 25% compared to the prior year period EPS.

  • Raising FY'12 EPS guidance to a range of $3.88 to $3.98.

  • Board of directors approved a $0.30 per share quarterly dividend.

  • Board of directors approved a new $1 billion share repurchase authorization.

Since the company typically beats estimates by more than 10%, the fact that Q2 numbers beat analysts expectations of only $0.96 by $0.14 wasn't too surprising.

The emerging markets remain the main growth driver with strong growth in Asia Pacific, South & Central America, and China. China revenue is still below 8% providing a lot of upside growth potential.

Revised Guidance

The company had a major guide up for 2012 with a mid point of $3.93. This exceeds the analyst estimates of $3.80, but investors will undoubtedly question why it wasn't raised further considering the big Q2 beat.

Stock Performance

The stock continues to rebound from the late April crash when the first questions came out regarding the distributor model from noted short seller David Einhorn.

The stock has since rebounded from a low at $42.50 in mid-May to around $54 in after hours on Monday. It remains a considerable amount below the peak around $72.50 in April.

Shareholder Payouts

Herbalife remains one of the most aggressive payers to shareholders with a solid dividend and a huge buyback plan. The company maintained the quarterly dividend at $0.30 for a 2.2% yield.

The buyback plan remains significant with the announcement of another $1B plan. Remember that the stock only has a $6B market cap. Even more important is that the company actually utilizes such plans during stock and market weakness. For the year, the company has repurchased $428M worth of stock at an average price of $46.37. That repurchase price is within 10% of the yearly low and considerably below the highs.

Valuation

The stock trades at a remarkably low 12x forward earnings even though it continues to grow at a much faster rate. The company just reported 25% quarterly earnings growth and guided towards 20% yearly growth on the high end.

Conclusion

If you don't have concerns with the marketing concept of a distributor model, then this stock provides a very compelling entry point. The company continues to throw out significant growth as it captures the emerging market consumer.

Investors that believe the company and the bullish case presented by the analyst mentioned above should load up on the stock. Without the concerns, the stock would likely be trading back at the all time highs over $72.

Disclaimer: Please consult your financial advisor before making any investment decisions.

Source: Herbalife Earnings Smash Estimates As Usual