Bill Ackman (Trades, Portfolio), the leader of Pershing Square Capital Management, released his first-quarter portfolio last week.
The guru’s New York-based hedge fund is known for taking large positions in a handful of underperforming companies and pushing for change in order to unlock value for shareholders. One of Ackman’s most well-known activist targets in recent years, which did not end well for him, was Valeant Pharmaceuticals.
Ackman’s most notable trades for the three months ended March 31 included new positions in Blackstone Group Inc. (BX, Financial) and Park Hotels & Resorts Inc. (PK, Financial), as well as significant increases in his holdings of Agilent Technologies Inc. (A, Financial) and The Howard Hughes Corp. (HHC, Financial). He also curbed his stake in Chipotle Mexican Grill Inc. (CMG, Financial) by 32.66%.
Blackstone Group
The activist guru invested in 548,526 shares of Blackstone, allocating 0.38% of the equity portfolio to the position. The stock traded for an average price of $55.53 per share during the quarter.
The New York-based investment management company has a $63.18 billion market cap; its shares were trading around $52.86 on Wednesday with a price-earnings ratio of 72.41, a price-book ratio of 6.64 and a price-sales ratio of 19.24.
The Peter Lynch chart shows the stock is trading above its fair value, suggesting it is overpriced. The GuruFocus valuation rank of 1 out of 10 also supports overvaluation since the price-earnings and price-sales ratios are near multiyear highs.
GuruFocus rated Blackstone’s financial strength 3 out of 10. As a result of issuing approximately $8.3 billion in new long-term debt over the past three years, it has poor interest coverage.
The company’s profitability did not fare much better, scoring a 4 out of 10 rating on the back of a net margin and return on equity that outperform slightly over half of its competitors. Despite recording a slowdown in revenue per share growth over the past 12 months, Blackstone also has a business predictability rank of one out of five stars. According to GuruFocus, companies with this rank return, on average, 1.1% per annum over a 10-year period.
Of the gurus invested in Blackstone, Tom Gayner (Trades, Portfolio) has the largest position with 0.10% of its outstanding shares. Other top guru shareholders include Pioneer Investments (Trades, Portfolio), Julian Robertson (Trades, Portfolio), Lee Ainslie (Trades, Portfolio), John Rogers (Trades, Portfolio), Alan Fournier (Trades, Portfolio), Mario Gabelli (Trades, Portfolio), Jim Simons (Trades, Portfolio)’ Renaissance Technologies, David Rolfe (Trades, Portfolio), Ken Fisher (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio) and Mairs and Power (Trades, Portfolio).
Park Hotels & Resorts
Ackman picked up 677,888 shares of Park Hotels & Resorts, dedicating 0.08% of the equity portfolio to the holding. Shares traded for an average price of $19.07 each during the quarter.
Headquartered in Tysons, Virginia, the real estate investment trust, which focuses on hotel properties, has a market cap of $2.14 billion; its shares were trading around $9.08 on Wednesday with a price-book ratio of 0.39 and a price-sales ratio of 0.73.
According to the price chart, the stock is trading above its median price-sales value but below its median price-book ratio.
Park’s financial strength was rated 4 out of 10 on the back of low interest coverage and an Altman Z-Score of 0.66, which warns the company could be in danger of going bankrupt. The weighted average cost of capital also exceeds the return on invested capital, suggesting poor profitability.
Although it is being weighed down by a declining operating margin and negative returns that underperform a majority of industry peers, the company’s profitability scored a 6 out of 10 rating. The REIT has also recorded a decline in revenue per share over the past year.
With a 4.84% stake, Mason Hawkins (Trades, Portfolio)’ Southeastern Asset Management is Park Hotels & Resorts’ largest guru shareholder. Donald Smith (Trades, Portfolio), Simons’ firm, Pioneer and Caxton Associates (Trades, Portfolio) also have positions in the stock.
Agilent Technologies
In his largest transaction for the quarter, Ackman expanded his stake in Agilent Technologies by 288.74%. He purchased 9.37 million shares, bringing his total holding to 12.62 million shares. The trade had an impact of 10.22% on the equity portfolio. During the quarter, the stock traded for an average per-share price of $80.63.
GuruFocus estimates the guru has gained 4.24% on the investment since establishing it in the third quarter of 2019.
The Santa Clara, California-based company, which manufactures analytical laboratory instruments and equipment, has a $25.38 billion market cap; its shares were trading around $82.73 on Wednesday with a price-earnings ratio of 34.23, a price-book ratio of 5.35 and a price-sales ratio of 4.99.
Based on the Peter Lynch chart, the stock appears to be overvalued. The GuruFocus valuation rank of 2 out of 10 agrees with this assessment as the share price, price-sales ratio and price-book ratio are near multiyear highs.
GuruFocus rated Agilent’s financial strength 6 out of 10, driven by sufficient interest coverage and a high Altman Z-Score of 4.32. The ROIC also surpasses the WACC, indicating good profitability.
The company’s profitability scored an 8 out of 10 rating on the back of an expanding operating margin, strong returns that outperform a majority of competitors and a moderate Piotroski F-Score of 5, which implies business conditions are stable. Agilent also has a one-star business predictability rank.
Ackman is now the company’s largest guru shareholder with a 4.08% stake. Other top guru investors include PRIMECAP Management (Trades, Portfolio), Andreas Halvorsen (Trades, Portfolio), Pioneer, the Parnassus Endeavor Fund (Trades, Portfolio), the Vanguard Health Care Fund (Trades, Portfolio) and Simons’ firm.
Howard Hughes
With an impact of 7.68% on the equity portfolio, the investor expanded his stake in Howard Hughes by 455.09%, buying 10 million shares. Ackman now owns 12.19 million shares total, which represent 9.37% of the total assets managed. During the quarter, the stock traded for an average price of $106.1 per share.
According to GuruFocus data, the guru has lost an estimated 32.47% on the investment since establishing it in the fourth quarter of 2010.
The real estate development and management company, which is headquartered in Dallas, has a market cap of $2.62 billion; its shares were trading around $47.64 on Wednesday with a price-book ratio of 0.58 and a price-sales ratio of 1.85.
The price chart shows the stock is trading above its median price-sales value but below its median price-book ratio.
Weighed down by about $1.6 billion in new long-term debt, Howard Hughes’ financial strength was rated 3 out of 10 by GuruFocus. The Altman Z-Score of 0.54 is also in the distress zone, warning that the company could be at risk of bankruptcy since it has recorded an operating loss over the past three years.
The company’s profitability fared a bit better, scoring a 6 out of 10 rating even though its margins are declining and its returns are negative and underperforming a majority of industry peers. Howard Hughes also has a low Piotroski F-Score of 3, indicates operating conditions are in poor shape, and a one-star business predictability rank that is on watch as a result of a decline in revenue per share over the past year.
Ackman is the company’s largest guru shareholder with a 22.21% stake. Simons’ firm and Donald Smith (Trades, Portfolio) also have positions in the stock.
Chipotle Mexican Grill
In the sole sale of the quarter, Ackman trimmed his Chipotle stake by 32.66%. He sold 563,078 shares, which had an impact of -7.19%. He now holds 1.16 million shares, which account for 11.56% of the equity portfolio. During the quarter, shares traded for an average price of $794.62 each.
GuruFocus estimates the guru has gained 93% on the investment since establishing it in the third quarter of 2016.
The Newport Beach, California-based restaurant chain, which is known for its tacos and Mission-style burritos, has a $28.62 billion market cap; its shares were trading around $1,027.28 on Wednesday with a price-earnings ratio of 85.96, a price-book ratio of 17.38 and a price-sales ratio of 5.12.
According to the Peter Lynch chart, the stock is overvalued, an assessment the GuruFocus valuation rank of 1 out of 10 aligns with since the share price and price ratios are near multiyear highs.
GuruFocus rated Chipotle’s financial strength 5 out of 10. Although the cash-debt ratio is underperforming in comparison to its history as well as its industry, the robust Altman Z-Score of 7.04 indicates the company is in good standing despite the fact assets are building up at a faster rate than revenue is growing.
The company’s profitability fared better with a 9 out of 10 rating. Even though the operating margin is in decline, it still outperforms over half of its competitors. Chipotle is also supported by strong returns, a moderate Piotroski F-Score of 6 and a one-star business predictability rank.
With a 6.59% stake, Simons’ firm is the largest guru shareholder of Chipotle. Other top gurus invested in the stock are Segalas, Pioneer, Steven Cohen (Trades, Portfolio), Ainslie, John Hussman (Trades, Portfolio), Caxton and Greenblatt.
Additional trades and portfolio performance
During the quarter, Ackman also boosted his holdings of Lowe’s Companies Inc. (LOW, Financial), Starbucks Corp. (SBUX, Financial), Berkshire Hathaway Inc. (BRK.B, Financial) and Hilton Worldwide Holdings Inc. (HLT, Financial). The only position he made no changes to was Restaurant Brands International Inc. (QSR, Financial).
Over 60% of the activist guru’s $6.57 billion equity portfolio, which is composed of 10 stocks, is invested in the consumer cyclical sector, with all other industries having much smaller representations.
After several years of underperformance, Pershing Square made a comeback in 2019 with a return of 58.1%. This was substantially above the S&P 500 Index’s 31.49% return.
Disclosure: No positions.
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