Citi predicts a big rally for Herbalife now that risk of Ackman bashing is over

  • Citi Research raises its rating to buy from neutral for Herbalife shares, citing the company's attractive valuation versus the market.
  • We "expect Ackman's exit may mean that some investors give Herbalife a new look as headline risk has dissipated, we contend that Herbalife should trade at a 10% premium to the market," the firm says in a note.
  • Pershing Square's Bill Ackman told CNBC on Feb. 28 he exited his losing bet against Herbalife, five years after his on-air verbal brawl with Carl Icahn over the company.
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Herbalife shares will rise because investors can now focus on the nutritional supplement maker's growth prospects rather than on negative headlines, according to one Wall Street firm.

Pershing Square's Bill Ackman told CNBC on Feb. 28 he exited his losing bet against Herbalife, five years after his on-air verbal brawl with Carl Icahn over the company. Icahn said the following day he made a billion dollar paper profit on his investment in the company.

Citi Research raised its rating to buy from neutral for Herbalife shares, citing the company's attractive valuation versus the market.

"Even with the rise in the stock, we see upside as Herbalife executes a tender offer and refinances its debt, to both reinvest in the business and repurchase shares in 2019," analyst Beth Kite wrote in a note to clients Monday. We "expect Ackman's exit may mean that some investors give Herbalife a new look as headline risk has dissipated, we contend that Herbalife should trade at a 10% premium to the market."

The company's stock is up 39 percent this year through Monday. Herbalife shares rose 2.5 percent Tuesday.

Kite increased her price target for Herbalife shares to $114 from $85, representing 21 percent upside to Monday's close.

Herbalife currently trades at a 9 percent price-to-earnings multiple discount to the S&P 500, according to the analyst's estimates. Kite said the company traded at an 8 percent premium to the market in 2010 and 2011 before Ackman publicized his bearish position.

"From a fundamental point of view, if Herbalife can deliver its local currency sales growth guidance in 2018, it would be one of the best top line stories in HPC [Household/Personal Care Products]," she wrote.

— CNBC's Michael Bloom contributed to this story.