Description

Herbalife produces nutritional, weight-loss, and personal care products. The products are sold globally thru an extensive network of independent distributors. Last year the Company earned $1.40 in EPS, so it's currently trading at just 5x trailing EPS. After the death of founder Mark Hughes, Chris Pair took over as CEO. Chris is going "back to basics" and as such he is revamping the Company's troubled Japanese business, seeking to cut costs, and grow earnings. This Company is very cash rich. This Company ended the year with over $4.50 in net cash on the balance sheet. They currently pay a dividend yielding 8.6%, which will provide plenty of downside protection. Backing out the cash, you are paying less than 2x trailing EPS! [($7-$4.50)/$1.40]

The Company is worth significantly more than its current $7 share price. At the end of '99, Mark Hughes tried to take the Company private, offering $17/share in cash, but had to scrap the plan given the difficulty of getting financing out of the high yield market.

Scan the holders list and you'll find some solid value players like Baupost and Pzena.

Catalyst

The catalyst is simply: The Company took its eye off the ball when Hughes tried to take it private and failed, and when Hughes died. Now, the new CEO is cleaning house and will grow earnings. The incredible cash position protects your downside this one. We also know that the founder thought it was worth in the high-teens. This is an incredible cash rich value play.