Carl Icahn May Be Tipping His Hand On Herbalife

Following Herbalife Ltd.'s HLF disappointing Q3 earnings report, it's now crunch time for billionaire Herbalife investor Carl Icahn. Revenue growth came in at just 2 percent year-over-year, while earnings fell 5 percent, both short of consensus expectations.

Following a $200 million settlement with the FTC earlier this year related to customer deception, long-time CEO Michael Johnson is now stepping down. Icahn, who first took a stake in Herbalife in early 2013, was at a crossroads following the recent report.

On Thursday, Icahn purchased more than 1.8 million shares of Herbalife, upping his total ownership stake in the company to 23.1 percent.

It’s always good news for a stock when a large fund manager is bullish, but Icahn’s most recent purchase may have much more bullish long-term implications.

What Now?

There is no way Icahn was pleased with the disappointing quarter from Herbalife or the departure of its CEO. The stock fell 10 percent following the report. Yet Icahn’s purchase this week has locked him into the stock for at least another 90 days and puts him along for the ride through what could potentially be another disappointing quarter in Q4.

Herbalife isn't the same company it was when Icahn first bought in. In addition to the FTC settlement, Herbalife’s share price, EPS and revenue have been trending downward since early 2014.

Historically, Icahn is not one to go down with a sinking ship or paint himself into a corner. When fundamentals change, he typically liquidates his position or makes a bigger move like a merging a company or taking a company private.

If Icahn is buying more Herbalife now, investors can read between the lines and reasonably conclude that he may have plans to take the company private, or even combine it with a national nutrition retailer, in the near future. Icahn has at least 90 days to decide what, if any, major move he will make.

Herbalife investors certainly aren’t pleased with the numbers the company delivered in Q3, but Icahn’s latest purchase may be the best news they could have gotten.