Entering the final month of the first quarter of 2022, one of Bill Ackman (Trades, Portfolio)’s holdings is trading near its 52-week low.
Despite seeing a strong recovery from the Covid-19 pandemic, the market continues to feel pressure as it contends with rising inflation, supply shortages and a war between Russia and Ukraine.
Similarly, the S&P 500 Index has fallen around 4.72% over the past month.
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. While he has found success in recent years with Chipotle Mexican Grill Inc. (CMG, Financial) and Starbucks Corp. (SBUX, Financial), one of Ackman’s most well-known activist targets, which did not end well for him, was Valeant Pharmaceuticals. He also pursued an unsuccessful short of Herbalife Nutrition Ltd. (HLF, Financial), which he bowed out of in 2018.
As of Dec. 31, Ackman’s fourth-quarter 13F filing shows his equity portfolio consists of six stocks, which was valued at $10.58 billion.
The investor’s holdings have not fared well so far in 2022, with all but one recording declines year to date.
Of those that have seen their shares collapse, only one has closed in on its lowest price in a year as of Monday: Restaurant Brands International Inc. (QSR, Financial).
Posting a return of -1.6% for 2021, shares of Restaurant Brands have fallen further so far this year. After seeing a slight gain on Friday to close at $55.52, shares edged 1.5% lower on Monday morning. The stock is currently 2.24% above its annual low of $53.47.
Based on the most recent 13F filing, Ackman owns 23.9 million shares of the company, reflecting 13.47% of his equity portfolio. As the fourth-largest position, GuruFocus data shows he has gained an estimated 43.97% on the investment since establishing it in the fourth quarter of 2014.
The Canadian restaurant company, which owns the Tim Hortons, Burger King, Popeyes and Firehouse Subs brands, has a $17.02 billion market cap; its shares were trading around $54.75 on Monday with a price-earnings ratio of 20.61, a price-book ratio of 9.56 and a price-sales ratio of 5.74.
The GF Value Line suggests the stock is modestly undervalued currently based on historical ratios, past financial performance and future earnings projections.
On Feb. 15, the company reported its fourth-quarter and full-year 2021 financial results. For the quarter, it posted adjusted earnings of 74 cents per share on $1.5 billion in revenue, both of which improved from the prior-year quarter.
For the full year, it recorded earnings of $2.69 per share on $5.7 billion in revenue. Both figures saw an improvement from 2020.
In a statement, CEO Jose Cil lauded the company’s performance, noting it saw “sequential improvements in each brand and around the world.”
“Our growth throughout 2021 resulted in strong free cash flow, allowing us to make important investments in our business while returning over $1.5 billion of capital to shareholders and acquiring a new restaurant brand in Firehouse Subs,” Cil said. “I am excited for what lies ahead for our family of four iconic brands and am confident in the strength of our team, our franchisees and our strategies to drive long-term growth and value creation.”
Restaurant Brands’ financial strength was rated 3 out of 10 by GuruFocus as a result of weak interest coverage and a low Altman Z-Score of 1.22 that warns it could be in danger of going bankrupt. The return on invested capital slightly exceeds the weighted average cost of capital, however, so value is being created as the company grows.
The company’s profitability fared better with a 9 out of 10 rating. Although the operating margin is declining, returns on equity, assets and capital outperform a majority of industry peers. Restaurant Brands has a high Piotroski F-Score of 7 out of 9, meaning conditions are healthy. Revenue per share has also declined over the past several years.
Of the gurus invested in the stock, Ackman has the largest stake with 7.6% of its outstanding shares. David Herro (Trades, Portfolio), PRIMECAP Management (Trades, Portfolio), Ray Dalio (Trades, Portfolio), Prem Watsa (Trades, Portfolio) and Jim Simons (Trades, Portfolio)’ Renaissance Technologies also own Restaurant Brands.
