Intrinsic value of Herbalife Nutrition Ltd. - HLF

Previous Close

$40.97

  Intrinsic Value

$20.02

stock screener

  Rating & Target

str. sell

-51%

Previous close

$40.97

 
Intrinsic value

$20.02

 
Up/down potential

-51%

 
Rating

str. sell

We calculate the intrinsic value of HLF stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 0001), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 6.3

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  8.50
  8.15
  7.83
  7.55
  7.30
  7.07
  6.86
  6.67
  6.51
  6.36
  6.22
  6.10
  5.99
  5.89
  5.80
  5.72
  5.65
  5.58
  5.53
  5.47
  5.43
  5.38
  5.34
  5.31
  5.28
  5.25
  5.23
  5.20
  5.18
  5.16
Revenue, $m
  5,308
  5,740
  6,190
  6,658
  7,143
  7,648
  8,173
  8,718
  9,286
  9,876
  10,490
  11,130
  11,796
  12,491
  13,216
  13,972
  14,761
  15,585
  16,446
  17,346
  18,287
  19,272
  20,302
  21,380
  22,509
  23,691
  24,929
  26,226
  27,585
  29,010
Variable operating expenses, $m
  4,545
  4,913
  5,294
  5,691
  6,103
  6,532
  6,977
  7,440
  7,922
  8,422
  8,904
  9,447
  10,012
  10,602
  11,217
  11,859
  12,528
  13,228
  13,959
  14,723
  15,522
  16,357
  17,231
  18,146
  19,104
  20,108
  21,158
  22,259
  23,413
  24,622
Fixed operating expenses, $m
  15
  16
  16
  16
  17
  17
  17
  18
  18
  19
  19
  19
  20
  20
  21
  21
  22
  22
  23
  23
  24
  24
  25
  25
  26
  26
  27
  28
  28
  29
Total operating expenses, $m
  4,560
  4,929
  5,310
  5,707
  6,120
  6,549
  6,994
  7,458
  7,940
  8,441
  8,923
  9,466
  10,032
  10,622
  11,238
  11,880
  12,550
  13,250
  13,982
  14,746
  15,546
  16,381
  17,256
  18,171
  19,130
  20,134
  21,185
  22,287
  23,441
  24,651
Operating income, $m
  747
  812
  880
  950
  1,023
  1,099
  1,178
  1,260
  1,346
  1,435
  1,567
  1,664
  1,764
  1,869
  1,978
  2,092
  2,211
  2,335
  2,465
  2,600
  2,742
  2,890
  3,046
  3,208
  3,378
  3,556
  3,743
  3,939
  4,144
  4,359
EBITDA, $m
  868
  940
  1,014
  1,092
  1,172
  1,256
  1,343
  1,433
  1,527
  1,625
  1,727
  1,833
  1,943
  2,059
  2,179
  2,304
  2,435
  2,572
  2,715
  2,864
  3,020
  3,183
  3,354
  3,533
  3,720
  3,916
  4,122
  4,337
  4,563
  4,799
Interest expense (income), $m
  45
  189
  129
  144
  160
  177
  194
  212
  230
  250
  270
  291
  312
  335
  359
  383
  409
  436
  464
  493
  523
  555
  589
  623
  660
  698
  738
  780
  824
  870
  918
Earnings before tax, $m
  558
  683
  736
  790
  847
  906
  967
  1,030
  1,096
  1,165
  1,277
  1,351
  1,429
  1,510
  1,595
  1,683
  1,775
  1,871
  1,972
  2,077
  2,187
  2,302
  2,422
  2,548
  2,680
  2,818
  2,963
  3,115
  3,274
  3,441
Tax expense, $m
  151
  185
  199
  213
  229
  244
  261
  278
  296
  315
  345
  365
  386
  408
  431
  454
  479
  505
  532
  561
  590
  621
  654
  688
  724
  761
  800
  841
  884
  929
Net income, $m
  407
  499
  537
  577
  618
  661
  706
  752
  800
  850
  932
  987
  1,043
  1,102
  1,164
  1,229
  1,296
  1,366
  1,439
  1,516
  1,596
  1,680
  1,768
  1,860
  1,957
  2,057
  2,163
  2,274
  2,390
  2,512

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  2,714
  2,935
  3,165
  3,404
  3,652
  3,910
  4,178
  4,457
  4,747
  5,049
  5,363
  5,690
  6,031
  6,386
  6,756
  7,143
  7,546
  7,968
  8,408
  8,868
  9,349
  9,853
  10,379
  10,930
  11,507
  12,112
  12,745
  13,408
  14,103
  14,831
Adjusted assets (=assets-cash), $m
  2,714
  2,935
  3,165
  3,404
  3,652
  3,910
  4,178
  4,457
  4,747
  5,049
  5,363
  5,690
  6,031
  6,386
  6,756
  7,143
  7,546
  7,968
  8,408
  8,868
  9,349
  9,853
  10,379
  10,930
  11,507
  12,112
  12,745
  13,408
  14,103
  14,831
Revenue / Adjusted assets
  1.956
  1.956
  1.956
  1.956
  1.956
  1.956
  1.956
  1.956
  1.956
  1.956
  1.956
  1.956
  1.956
  1.956
  1.956
  1.956
  1.956
  1.956
  1.956
  1.956
  1.956
  1.956
  1.956
  1.956
  1.956
  1.956
  1.956
  1.956
  1.956
  1.956
Average production assets, $m
  621
  672
  724
  779
  836
  895
  956
  1,020
  1,086
  1,155
  1,227
  1,302
  1,380
  1,461
  1,546
  1,635
  1,727
  1,823
  1,924
  2,030
  2,140
  2,255
  2,375
  2,501
  2,633
  2,772
  2,917
  3,068
  3,227
  3,394
Working capital, $m
  -329
  -356
  -384
  -413
  -443
  -474
  -507
  -541
  -576
  -612
  -650
  -690
  -731
  -774
  -819
  -866
  -915
  -966
  -1,020
  -1,075
  -1,134
  -1,195
  -1,259
  -1,326
  -1,396
  -1,469
  -1,546
  -1,626
  -1,710
  -1,799
Total debt, $m
  1,672
  1,871
  2,078
  2,293
  2,516
  2,749
  2,990
  3,241
  3,502
  3,774
  4,056
  4,351
  4,657
  4,977
  5,310
  5,658
  6,021
  6,401
  6,797
  7,211
  7,644
  8,097
  8,571
  9,067
  9,586
  10,130
  10,700
  11,297
  11,922
  12,578
Total liabilities, $m
  2,442
  2,641
  2,848
  3,063
  3,287
  3,519
  3,761
  4,011
  4,273
  4,544
  4,827
  5,121
  5,428
  5,747
  6,081
  6,429
  6,792
  7,171
  7,567
  7,981
  8,414
  8,867
  9,341
  9,837
  10,357
  10,901
  11,470
  12,067
  12,693
  13,348
Total equity, $m
  271
  293
  316
  340
  365
  391
  418
  446
  475
  505
  536
  569
  603
  639
  676
  714
  755
  797
  841
  887
  935
  985
  1,038
  1,093
  1,151
  1,211
  1,274
  1,341
  1,410
  1,483
Total liabilities and equity, $m
  2,713
  2,934
  3,164
  3,403
  3,652
  3,910
  4,179
  4,457
  4,748
  5,049
  5,363
  5,690
  6,031
  6,386
  6,757
  7,143
  7,547
  7,968
  8,408
  8,868
  9,349
  9,852
  10,379
  10,930
  11,508
  12,112
  12,744
  13,408
  14,103
  14,831
Debt-to-equity ratio
  6.160
  6.370
  6.570
  6.740
  6.890
  7.030
  7.160
  7.270
  7.380
  7.470
  7.560
  7.650
  7.720
  7.790
  7.860
  7.920
  7.980
  8.030
  8.080
  8.130
  8.180
  8.220
  8.260
  8.300
  8.330
  8.360
  8.400
  8.430
  8.450
  8.480
Adjusted equity ratio
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  407
  499
  537
  577
  618
  661
  706
  752
  800
  850
  932
  987
  1,043
  1,102
  1,164
  1,229
  1,296
  1,366
  1,439
  1,516
  1,596
  1,680
  1,768
  1,860
  1,957
  2,057
  2,163
  2,274
  2,390
  2,512
Depreciation, amort., depletion, $m
  121
  128
  134
  141
  149
  157
  164
  173
  181
  190
  159
  169
  179
  190
  201
  212
  224
  237
  250
  264
  278
  293
  308
  325
  342
  360
  379
  398
  419
  441
Funds from operations, $m
  528
  626
  672
  718
  767
  818
  870
  925
  982
  1,041
  1,092
  1,156
  1,223
  1,292
  1,365
  1,441
  1,520
  1,603
  1,689
  1,780
  1,874
  1,973
  2,077
  2,185
  2,299
  2,417
  2,542
  2,672
  2,809
  2,952
Change in working capital, $m
  -26
  -27
  -28
  -29
  -30
  -31
  -33
  -34
  -35
  -37
  -38
  -40
  -41
  -43
  -45
  -47
  -49
  -51
  -53
  -56
  -58
  -61
  -64
  -67
  -70
  -73
  -77
  -80
  -84
  -88
Cash from operations, $m
  554
  653
  699
  747
  797
  849
  903
  959
  1,017
  1,077
  1,130
  1,195
  1,264
  1,335
  1,410
  1,488
  1,569
  1,654
  1,743
  1,835
  1,933
  2,034
  2,141
  2,252
  2,368
  2,491
  2,619
  2,753
  2,893
  3,041
Maintenance CAPEX, $m
  -74
  -81
  -87
  -94
  -101
  -109
  -116
  -124
  -132
  -141
  -150
  -159
  -169
  -179
  -190
  -201
  -212
  -224
  -237
  -250
  -264
  -278
  -293
  -308
  -325
  -342
  -360
  -379
  -398
  -419
New CAPEX, $m
  -50
  -51
  -53
  -55
  -57
  -59
  -61
  -64
  -66
  -69
  -72
  -75
  -78
  -81
  -85
  -88
  -92
  -96
  -101
  -105
  -110
  -115
  -121
  -126
  -132
  -138
  -145
  -152
  -159
  -167
Cash from investing activities, $m
  -124
  -132
  -140
  -149
  -158
  -168
  -177
  -188
  -198
  -210
  -222
  -234
  -247
  -260
  -275
  -289
  -304
  -320
  -338
  -355
  -374
  -393
  -414
  -434
  -457
  -480
  -505
  -531
  -557
  -586
Free cash flow, $m
  430
  522
  560
  599
  639
  681
  725
  771
  818
  867
  908
  961
  1,017
  1,075
  1,135
  1,198
  1,264
  1,333
  1,405
  1,480
  1,559
  1,641
  1,727
  1,817
  1,912
  2,010
  2,114
  2,222
  2,336
  2,455
Issuance/(repayment) of debt, $m
  -782
  199
  207
  215
  224
  232
  241
  251
  261
  272
  283
  294
  307
  320
  333
  348
  363
  379
  396
  414
  433
  453
  474
  496
  519
  544
  570
  597
  625
  656
Issuance/(repurchase) of shares, $m
  587
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -195
  199
  207
  215
  224
  232
  241
  251
  261
  272
  283
  294
  307
  320
  333
  348
  363
  379
  396
  414
  433
  453
  474
  496
  519
  544
  570
  597
  625
  656
Total cash flow (excl. dividends), $m
  236
  721
  766
  814
  863
  914
  966
  1,022
  1,079
  1,139
  1,190
  1,255
  1,323
  1,394
  1,469
  1,546
  1,627
  1,712
  1,801
  1,894
  1,992
  2,094
  2,201
  2,313
  2,431
  2,554
  2,683
  2,819
  2,961
  3,110
Retained Cash Flow (-), $m
  -995
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -30
  -31
  -33
  -34
  -36
  -37
  -39
  -40
  -42
  -44
  -46
  -48
  -50
  -53
  -55
  -58
  -60
  -63
  -66
  -69
  -73
Prev. year cash balance distribution, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
  -759
  699
  743
  790
  838
  888
  940
  994
  1,050
  1,109
  1,159
  1,223
  1,289
  1,359
  1,432
  1,508
  1,587
  1,670
  1,757
  1,848
  1,944
  2,044
  2,148
  2,258
  2,373
  2,494
  2,620
  2,753
  2,892
  3,038
Discount rate, %
  7.00
  7.35
  7.72
  8.10
  8.51
  8.93
  9.38
  9.85
  10.34
  10.86
  11.40
  11.97
  12.57
  13.20
  13.86
  14.55
  15.28
  16.04
  16.85
  17.69
  18.57
  19.50
  20.48
  21.50
  22.58
  23.70
  24.89
  26.13
  27.44
  28.81
PV of cash for distribution, $m
  -710
  607
  595
  578
  557
  531
  502
  469
  433
  395
  353
  315
  277
  240
  204
  171
  142
  115
  91
  71
  54
  41
  30
  21
  15
  10
  6
  4
  3
  2
Current shareholders' claim on cash, %
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0

Herbalife Ltd. is a global nutrition company. The Company develops and sells weight management, healthy meals and snacks, sports and fitness, energy and targeted nutritional products, as well as personal care products. Its operating segments are based on geographical operations in six regions: North America; Mexico; South and Central America; Europe, the Middle East, and Africa (EMEA); Asia Pacific, and China. The Company categorizes its products into five groups: weight management, targeted nutrition, energy, sports and fitness, outer nutrition, and literature, promotional and other. As of December 31, 2016, it marketed and sold approximately 140 products encompassing over 4,700 stock keeping units (SKUs) globally. Its product categories include meal replacement; protein shakes; drink mixes; dietary and nutritional supplements containing herbs, vitamins, minerals and other natural ingredients; facial skin care; body care; hair care products; sales tools, and educational materials.

FINANCIAL RATIOS  of  Herbalife Nutrition Ltd. (HLF)

Valuation Ratios
P/E Ratio 14.7
Price to Sales 0.8
Price to Book 19.5
Price to Tangible Book
Price to Cash Flow 10.4
Price to Free Cash Flow 17
Growth Rates
Sales Growth Rate 0.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 81%
Cap. Spend. - 3 Yr. Gr. Rate -0.6%
Financial Strength
Quick Ratio 84
Current Ratio 0
LT Debt to Equity 733.7%
Total Debt to Equity 738.8%
Interest Coverage 9
Management Effectiveness
Return On Assets 11.6%
Ret/ On Assets - 3 Yr. Avg. 13.6%
Return On Total Capital 16.2%
Ret/ On T. Cap. - 3 Yr. Avg. 19.8%
Return On Equity 366.2%
Return On Equity - 3 Yr. Avg. 158.7%
Asset Turnover 1.8
Profitability Ratios
Gross Margin 81%
Gross Margin - 3 Yr. Avg. 80.7%
EBITDA Margin 11.3%
EBITDA Margin - 3 Yr. Avg. 12.2%
Operating Margin 10.2%
Oper. Margin - 3 Yr. Avg. 11.2%
Pre-Tax Margin 8.1%
Pre-Tax Margin - 3 Yr. Avg. 9.2%
Net Profit Margin 5.8%
Net Profit Margin - 3 Yr. Avg. 6.5%
Effective Tax Rate 28.8%
Eff/ Tax Rate - 3 Yr. Avg. 28.5%
Payout Ratio 0%

HLF stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the HLF stock intrinsic value calculation we used $4892 million for the last fiscal year's total revenue generated by Herbalife Nutrition Ltd.. The default revenue input number comes from 0001 income statement of Herbalife Nutrition Ltd.. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our HLF stock valuation model: a) initial revenue growth rate of 8.5% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 7%, whose default value for HLF is calculated based on our internal credit rating of Herbalife Nutrition Ltd., is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Herbalife Nutrition Ltd..
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of HLF stock the variable cost ratio is equal to 85.7%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $15 million in the base year in the intrinsic value calculation for HLF stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 7.7% for Herbalife Nutrition Ltd..

Corporate tax rate of 27% is the nominal tax rate for Herbalife Nutrition Ltd.. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the HLF stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for HLF are equal to 11.7%.

Life of production assets of 7.7 years is the average useful life of capital assets used in Herbalife Nutrition Ltd. operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for HLF is equal to -6.2%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $-723.4 million for Herbalife Nutrition Ltd. - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 152.892 million for Herbalife Nutrition Ltd. is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Herbalife Nutrition Ltd. at the current share price and the inputted number of shares is $6.3 billion.

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