The guru’s New York-based hedge fund invested in 10.9 million shares of Hilton, which represents roughly 13.9% of the investment firm's net asset value.
The McLean, Virginia-based hotel operator has a $20.14 billion market cap; its shares were trading around $67.55 on Thursday with a price-earnings ratio of 15.58, a price-book ratio of 36.33 and a price-sales ratio of 2.36.
The Peter Lynch chart shows the stock is trading close to its fair value.
On Wednesday, Hilton reported third-quarter adjusted earnings of 77 per share, a 38% increase from the prior-year quarter. Revenue grew 7.7% to $2.2 billion as a result of higher comparable revenue per available room. The company beat earnings estimates but missed revenue expectations.
Weighed down by poor interest coverage and a low Altman Z-Score of 1.12, which suggests it is at risk of going bankrupt, GuruFocus rated Hilton’s financial strength 4 out of 10. GuruFocus also warns that the company’s revenue per share has declined for the past five years.
The company’s profitability and growth scored a 5 out of 10 rating. While its operating margin is expanding, it still underperforms a majority of industry peers. Its net margin and returns, however, are outperforming competitors. It also has a Piotroski F-Score of 6, which indicates business conditions are stable.
With his purchase, Ackman became the company’s largest guru shareholder. Other guru investors include Steven Cohen (Trades, Portfolio), Richard Pzena (Trades, Portfolio), Bill Nygren (Trades, Portfolio), PRIMECAP Management (Trades, Portfolio), Ken Heebner (Trades, Portfolio), Pioneer Investments (Trades, Portfolio), Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Caxton Associates (Trades, Portfolio), Ron Baron (Trades, Portfolio), George Soros (Trades, Portfolio) and Joel Greenblatt (Trades, Portfolio).
As an activist investor, Ackman is known for taking large positions in companies and pushing management for change in order to unlock value for shareholders.
His $5.8 billion equity portfolio is composed of eight holdings, largely represented by the consumer cyclical sector. As of the second quarter, he had positions in Lowe’s Companies Inc. (LOW, Financial), United Technologies Corp. (UTX, Financial), Mondelez International Inc. (MDLZ, Financial), Chipotle Mexican Grill Inc. (CMG, Financial), The Howard Hughes Corp. (HHC, Financial), Platform Specialty Products Corp. (PAH, Financial), Restaurant Brands International Inc. (QSR, Financial) and Automatic Data Processing Inc. (ADP, Financial).
Pershing Square said the Hilton investment will be discussed in greater detail in its third-quarter letter and investor call.
Disclosure: No positions.
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