Herbalife Sees The Upside To Obesity, posted by Karine Vignelles

As health problems related to rising obesity begin to manifest themselves in the years ahead, healthcare and pharmaceutical companies are the most obvious beneficiaries; however, companies who sell nutrition and weight management products are also set for a boost. Herbalife is a leader in this weight management industry.

With 36% of Americans classified as obese (in 2006, according to the Center for Disease Control), Herbalife has an impressive market for its diet shakes.
This means there are a lot of people out there searching for weight-loss solutions, solutions often found in a can of Herbalife's "Formula 1" diet shake mix. If Herbalife's fourth quarter results and forward looking guidance are any indication, the upside for the stock could be huge.

Slowdown? What Slowdown?
Herbalife saw its income jump to $53.8 million (77 cents a share) in Quarter 4 from $41.7 million (56 cents a share) in the comparable period last year. Its revenue line increased 19% to $578.1 million from $487.4 million last year. Analysts had been expecting earnings of just 73 cents per share on revenue of roughly $536.6 million.

Going forward, Herbalife's management expects 2008 earnings to be in the range of $3.25-3.30 per share, which is north of the $3.17-3.23 it had previously forecast, and it's also ahead of the $3.20 per share that analysts forecast. This shows Herbalife has the ability to grow despite a slowing economy and stiff competition from diet food companies such as privately held Jenny Craig.

It also shows that Herbalife's move beyond simple multi-vitamins into products like meal replacements and appetite suppressants is working. It also shows that Herbalife's footprint and distribution base are valuable assets that help set it apart. The products are currently sold in 65 countries by a network of about 1.7 million distributors.

The stock looks cheap right now. At present the company trades at about 13.2-times management's 2008 forecast of $3.25 per share, yet it's expected to grow its bottom line at a 16.4% pace from 2007 to 2008. That's pretty attractive.

As a bonus Herbalife's stock pays a small dividend whose current yield is about 1.9%.

Bottom Line
The stock looks like both a bargain and a safe haven, a rare combination in this market. Financial Writer, Glenn Curtis, thinks the stock would be more fairly valued in the mid-$50s. He thinks it has the potential to trade to this level within the next 12 months. The small dividend is the 'fat-free' icing on the cake.