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Bill Ackman’s Mixed Track Record
Posted by: Holly LaFon (IP Logged)
Date: June 6, 2013 10:01PM
As noted yesterday, activist investor Bill Ackman had a stunning success with his Canadian Pacific Railway campaign. But the Pershing Square manager’s all-in style has also stalled and crashed in the past. The following surveys the recent investing ups and downs of a guru who still managed to return 25% on average annualized from 2004 to 2010.
Canadian Pacific Railway (CP)
Ackman made his grand entrance to Canadian Pacific Railway by buying 13.85% of the company, or 14,259,888 shares, for $1.4 billion and beginning a proxy battle to replace board members and bring about the CEO’s ouster. He won the fight in May 2012, resulting in seven of his hand-picked directors joining the board and Hunter Harrison replacing Fred Green as CEO. Ackman’s pretext was that the company could streamline operations and enhance profitability for shareholders.
In an official release from Pershing, shares have nearly tripled since Ackman’s purchase, topping $142 in price in May. They have since declined to $128.23 on Thursday after Ackman’s announcement this week that he would sell a portion of his holding in the company.
Bill Ackman’s holding history with CP:
Ackman and several of his colleagues will remain on the board after the sale, but the reverse DCF calculator indicates that the market expects a 24.6% growth rate over the next 10 years to justify the share price. Such rapid growth is rarely seen in a railroad company.
Company leadership has imposed great changes at the company since Ackman’s arrival, which led to some improved financial results.
Key financial results the quarter Ackman bought CP (third quarter 2011)
· Revenue - $1.3 billion
· Net income - $186.8 million
· Operating margin – 24.19%
· Operating ratio – 75.8%
Key financial results for most recent quarter (first quarter 2013)
· Revenue $1.495 billion
· Net income - $217 million
· Operating margin – 24.21%
Ackman disclosed short position of 20 million shares in Herbalife at an Ira Sohn even in December 2012. As he walked investors through a 120-page presentation dismantling the company and accusing it of being “a pyramid scheme,” its stock fell 12.14%. It lost a further 9.75% the following day, to close at $33.60 per share.
Ackman’s immediate gain on his short position can be seen in the chasm in Herbalife’s stock price in December, as the market felt the effects of his short presentation:
The stock quickly began to recover when fellow hedge fund manager Daniel Loeb of Third Point announced an opposing 3.1 million-share long position in Herbalife on Jan. 3. His quarterly filing then revealed that he had purchased 3.1 million shares in the company in the fourth quarter, for a total position of 8.9 million shares.
Carl Icahn then infused more optimism into the stock, purchasing 14,015,151 shares on Feb. 28 and then increasing the stock up to 16,966,485 shares as of May 7 – a full 16.46% of the company.
Ackman, however, lodged a second attack on the company in a presentation in March in which he again called Herbalife a pyramid scheme and said he expects a government investigation and failure of the company.
“We’re prepared to spend whatever it costs and do whatever is required to make sure that the world understands the facts about this company,” Ackman has said. “We can’t imagine how the SEC or the Federal Trade Commission or any other relevant regulator will ignore what we have said.”
Both a Hispanic group and the National Consumers League have called on the Federal Trade Commission to launch an investigation into Herbalife, but the agency has said that such an investigation wouldn’t be public.
Ackman’s short price is unknown, but Herbalife shares traded for around $46 at the beginning of December, before his short announcement, and are priced at $43.50, making him approximately even on this trade. Almost six months later, Ackman still seems intent on his mission, telling the Financial Times on June 4 that closing Herbalife would be “the greatest achievement of my life.”
J.C. Penney (JCP)
Ackman amassed 39,075,771 shares of J.C. Penney from the third quarter of 2010 through the first quarter of 2011. As of March 31, he owns 17.78% of the company, and the holding is 5.9% of his highly concentrated portfolio.
The company’s stock price as of Thursday has slid to $18.15, for which Ackman’s pick for recently fired CEO, Ron Johnson, has been widely credited. See J.C. Penney’s price, revenue, net income and free cash flow history for the past three years in the chart below:
With average purchase prices of $23, $32, $36 and $38, and shares down 30% over the past year, Ackman stands by a 37% average loss on J.C. Penney as of Thursday.
Ackman’s other top holdings in his present long portfolio have performed well overall. On second largest holding Procter & Gamble (PG) established in the second quarter of 2012, he has an approximate 19% average gain. Third-largest holding General Growth Properties (GGP) has a 42% average gain, and his fourth-largest position, Beam Inc. (BEAM), is up 30% from his average purchase price in the fourth quarter of 2011.
See Ackman’s portfolio here. Also check out the Undervalued Stocks, Top Growth Companies and High Yield stocks of Bill Ackman.
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Guru Discussed: Bill Ackman: Current Portfolio, Stock Picks
Stocks Discussed: CP, HLF, JCP, PG, BEAM, GGP,