Bill Ackman Presentation Discusses Top Picks, Takes Another Shot at Herbalife

Air Products & Chemicals, Inc. (NYSE:APD)

 – Shares Owned by Pershing Square (as of December 31): 20.55 Million

– Value of Pershing Square’s Holding (as of December 31): $2.67 Billion

– Q1 Return: 11.4%

Moving on, Pershing Square’s largest equity position on December 31 was Air Products & Chemicals, Inc. (NYSE:APD), which has also been its best performing stock pick this year and its only notable winner during the first quarter. At the end of last year, the fund held 20.55 million shares, equal to 9.51% of the company’s outstanding shares. The fund believes that Air Products & Chemicals, Inc. (NYSE:APD)’s CEO Seifi Ghasemi has done a remarkable job in transforming the company and will continue doing so in the future. It believes that over the longer term, Air Products & Chemicals can “grow EPS at a low- to mid-teens growth rate for years to come.” Moreover, Pershing Square feels that the company made the right decision by announcing the spin-off of its non-core materials technology business, Versum Materials, which is expected to be completed by the end of September of this year. For the first quarter, Air Products & Chemicals reported EPS of $1.82 on revenue of $2.27 billion, beating analysts’ consensus EPS expectation of $1.81 but missing on their revenue estimate of $2.38 billion. Philip Hilal‘s Clearfield Capital initiated a stake in the company during the first quarter, purchasing 250,100 shares.

Valeant Pharmaceuticals Intl Inc (NYSE:VRX)

 – Shares Owned by Pershing Square (as of December 31): 16.59 Million

– Value of Pershing Square’s Holding (as of December 31): $1.69 Billion

– Q1 Return: -74.1%

Valeant Pharmaceuticals Intl Inc (NYSE:VRX) was the only stock in which Pershing Square reduced its stake during the final quarter of 2015, by 15%. However, it still owned a nearly 9% stake in the company (including options), as of April 21. According to Pershing Square’s presentation, the fund started buying Valeant’s stock at $161 per share and, as of April 21, the stock was trading down by 83% from the fund’s average purchase price of $196 per share. Despite that tumble, Pershing Square still hasn’t given up on the company, highlighting in its presentation how it has been working with it to protect its investment. After the disastrous earnings the company reported on March 15, Mr. Ackman joined the company’s Board and has been instrumental in making a number of changes, which included the appointment of Perrigo Company plc Ordinary Shares (NYSE:PRGO)’s former CEO, Joe Papa, as the new CEO of the company. Considering Mr. Papa’s brilliant track record at Perrigo, Pershing Square feels that he will be able to turn around Valeant Pharmaceuticals before long. However, most analysts and brokerages don’t necessarily share that view. On May 3, analysts at Rodman & Renshaw reiterated their ‘Buy’ rating on the stock, but lowered their price target on it to $102 from $105. Hedge funds that initiated a stake in the company during the first quarter included Anders Hallberg and Carl Bennet‘s HealthInvest Partners AB, which bought 370,000 shares of the company.

Mr. Ackman Remains Resolute on Herbalife Ltd. (NYSE:HLF)’s Downfall

Pershing Square has been bearish on Herbalife Ltd. (NYSE:HLF) for a long time, taking out a billion dollar short position on the company a few years ago. Though in its presentation, the fund didn’t share the size of its current short position in the stock, it did reveal that as of April 21, Herbalife Ltd. (NYSE:HLF)’s stock has appreciated by 28% from the average price of its short position (inclusive of dividends). According to Pershing Square, the FTC, which is still investigating the company, won’t give it a “‘slap on the wrist’ and the company will fail to survive” if the courts applied the same restrictions to Herbalife which they have imposed upon Vemma. Through membership data disclosed by Herbalife over the years, Pershing Square highlighted how the company’s membership growth has plateaued and that its new gross member additions are on the decline. The fund cited the company’s weakening financial results as proof that its business is struggling. It also highlighted how despite Herbalife’s weak operating performance, the company’s stock rose by over 40%  in 2015, solely due to P/E expansion. Speaking to CNBC on May 2, Mr. Ackman said that Herbalife’s business “has deteriorated dramatically” and urged the company’s employees to leave their jobs. David Kowitz and Sheldon Kasowitz‘s Indus Capital raised its stake in Herbalife during the first quarter by 44% to 3.17 million shares.

Disclosure: None