Herbalife Ltd., the Los Angeles nutritional products company facing multiple regulatory investigations of its business model, will probably earn less money than expected this year because of foreign currency complications, an analyst said.
As a result, Canaccord Genuity analyst Scott Van Winkle lowered his target price for the company's stock to $50 from $60 on Thursday and slashed his expectations for the company's earnings this year by 9%.
"The valuation has compressed further as currency head winds compound lingering uncertainty from an ongoing FTC investigation," Van Winkle said.
The Federal Trade Commission disclosed last year that it had opened an investigation of Herbalife's business practices, though the agency has taken no action against the company thus far. The
Hedge fund manager Bill Ackman had called for the investigation in 2012, saying he believed Herbalife operated a pyramid scheme that victimized millions of its independent sales people across the globe. Ackman said he shorted Herbalife's stock by more than $1 billion, betting that its stock price would fall.
The company vehemently denied the allegations, saying its practices are legal and employed by many other multilevel marketing companies. Michael O. Johnson, a former Walt Disney Co. executive who runs Herbalife, has said he expects the FTC to conclude that Herbalife's business model is legal.
Herbalife, founded in 1980, sells weight loss, nutrition and personal care products through a network of millions of sales people in more than 80 countries. The sales people, or distributors, can profit by selling products they buy at a discount -- and also from commissions they receive from sales made by other distributors they recruit into the business.
Van Winkle said he continues to rate the stock as a "buy" because he believes it is undervalued.
Herbalife shares fell 52% last year amid concerns of the regulatory investigations. The stock has continued to slip this year, sliding another 20%.
Herbalife shares were up 44 cents, or 1.5%, to $30.70 in midsession trading Thursday.