Herbalife Thrives On Healthy Living Trend

Herbalife (NYSE:HLF), a California-based supplement company that sells its wares in 69 countries and through some 1.9 million independent distributors, has the potential to benefit in a big way from Americans' healthy lifestyle focus.

Back in the early 1970s, very few individuals had a formal exercise or diet regimen. Health foods weren't on the scene yet per se. And if someone was running beside the road, it was probably due to being chased, not exercise. But that's all changed.

Over the last two decades or so, many Americans have gone on a health kick. As a result, gyms and health food stores now dot the landscape. Even big box retailers from Wal-Mart (NYSE:WMT) to Target (NYSE:TGT) and Sears Holdings (Nasdaq:SHLD) now carry a plethora of dietary and health-related products. (Learn more about retailers at Analyzing Retail Stocks.)

Here's what piques my interest in Herbalife's business in a little more detail:

Its Products
Herbalife sells a plethora of products that, I believe, appeal to both men and women. Among its wares are body washes and cleansers, protein snacks and weight management products like shakes that substitute for meals. The company has been around since 1980, which demonstrates staying power and the ability to survive despite increasing competition. Incidentally, a major supplier to the company that you may have heard of is NBTY (NYSE:NTY), formerly Nature's Bounty.

A Solid Quarter And Valuation
On November 3 after the closing bell, Herbalife released its third-quarter numbers. It earned $58.1 million or 89 cents a share. That was sharply north of the $48.3 million or 67 cents a share it booked in the same period last year. It was also a healthy 3 cents ahead of Street expectations. (Read more about earnings guidance at Can Earnings Guidance Accurately Predict The Future?)

Naysayers may say this doesn't matter because the company also indicated in the release that it expects full-year earnings of $3.50 to $3.55 a share, which is well south of the $3.68 a share the Street was expecting. But I'm still encouraged by $3.50 to $3.55 a share. And for next year it's guiding at $3 to $3.20 a share.

Part of Herbalife's problem seems to be its foreign currency exposure. The earnings release quoted CEO Michael Johnson as saying, "Although unprecedented fluctuations of the U.S. dollar versus most major currencies are causing headwinds in the fourth quarter 2008, which may continue throughout 2009, our mid-single digit volume point growth reflects our distributors' tremendous opportunity inherent in challenging economic times, and they are focused on expanding their businesses." (Learn to allocate your investments to profit from a falling greenback at Taking Advantage Of A Weak U.S. Dollar.)

In any case, for a stock that trades under $20, its expectations are quite attractive. It means the company trades at about 5.7 times its current year guidance, and at about 6.6 times next year's guidance. For comparison, Nu Skin Enterprises (NYSE:NUS), whose business revolves around skin products and supplements, trades at about 11.8 times the current year forecast of $1.06 a share, and at about 10.1 times next year's estimate of $1.24 a share as of November 5.

USANA Health Sciences (Nasdaq:USNA), which is in the personal care products business, trades at 15.6 times the current year estimate of $2.25 a share and at roughly 13.9 times next year's estimate of $2.52 a share.

Bottom Line
America's "health kick" is here to stay, and Herbalife will benefit from this healthy living trend. The company's solid Q3 results, and its still healthy outlook for '09, lead me to believe the shares are a good value.