In this article, we discuss the top 3 stock picks of Bill Ackman’s Pershing Square portfolio. If you want to read our detailed analysis of Ackman’s history, investment philosophy, and hedge fund performance, go directly to Bill Ackman’s Pershing Square Portfolio: Top 6 Stock Picks.
3. Hilton Worldwide Holdings Inc. (NYSE:HLT)
Bill Ackman’s Pershing Square’s Stake Value: $1,702,284,000
Percentage of Bill Ackman’s Pershing Square’s 13F Portfolio: 17.98%
Number of Hedge Funds: 44
Hilton Worldwide Holdings Inc. (NYSE:HLT) is a hospitality company with a portfolio of over 18 globally renowned brands that have a presence in over 122 countries through 6,700 properties. The McLean, Virginia-based corporation develops, franchises, leases, and manages these hotels and restaurants.
On January 10, Richard Clarke at Bernstein issued a target price of $161 with a Market Perform rating on Hilton Worldwide Holdings Inc. (NYSE:HLT) stock. The analyst thinks that investors need to be selective in picking stocks from the hospitality industry as the stocks are sitting at all-time highs. Clarke gave the stock a Market Perform rating due to the absence of positive catalysts in the short term.
Bill Ackman’s Pershing Square initiated a long position in Hilton Worldwide Holdings Inc. (NYSE:HLT) with a stake of over 10.9 million shares in Q4 2018. Since then the hedge fund has increased its holdings to nearly 12.9 million shares as of Q3 2021.
In the last year, the stock price of Hilton Worldwide Holdings Inc. (NYSE:HLT) has increased by 32% as of January 20, reflecting the lodging industry’s recovery following the COVID-19 pandemic. The stock has outperformed the S&P 500 Index, which experienced an increase of just over 23% during the same period.
Pershing Square revealed during the Q3 investor call that Hilton Worldwide Holdings Inc. (NYSE:HLT) is staging a rapid recovery following the COVID-19 pandemic. However, the organization is still not back to pre-COVID levels in terms of RevPAR, but it’s “getting close.” The hedge fund anticipates the RevPAR recovering to the pre-COVID level in 2022.
In its Q2 2021 investor letter, Pershing Square Holdings, Ltd. discussed its stance on Hilton Worldwide Holdings Inc. (NYSE:HLT). Here’s what the investment management firm said:
“While the hotel industry has been extremely negatively impacted by the COVID-19 pandemic, Hilton has done an excellent job navigating industry volatility, a testament to the company’s high-quality, asset light, high-margin business model and superb management team. From the moment the pandemic began, Hilton’s management team took decisive actions to ensure the company not only managed through what it knew would be a challenging period but also positioned the company to generate improved margins, cash flows and investment returns once the business recovers to pre-COVID-19 demand levels.
Industry RevPAR (the industry metric for same-store sales at a given hotel) bottomed in April 2020 and has shown sequential improvement every quarter as travel and mobility have recovered along with COVID-19 vaccine rollouts and a resumption in travel. In recent months, there is increasing evidence that a robust recovery scenario is underway, led by domestic leisure travel occasions which is currently trending above 2019 demand levels. For the first three weeks of July, the most recent data the company provided, RevPAR has already recovered to 85% of 2019 levels – a significant improvement over prior months driven by increased hotel occupancy and a rapid recovery in rate.
While management anticipates a moderation in leisure demand as we exit the summer, it expects the moderation in leisure travel to be offset by a more pronounced recovery in business transient travel occasions as offices reopen this fall. Although there remains near-term uncertainty in domestic travel given the increase in COVID-19 case numbers following the arrival of the Delta variant in the U.S., we believe that the medium-term outlook continues to point to a robust recovery scenario. Throughout the pandemic, Hilton took actions to reduce corporate expenses by about 20% compared to 2019 levels.
Simultaneously, the company provided resources and support to the Hilton owner community which further solidified Hilton as the preferred franchise partner, thereby expanding Hilton’s pipeline of units around the world.
In the most recent quarter Hilton affirmed its near-to-medium term outlook of mid-single-digit net unit growth, and a resumption of its historical 6-7% net unit growth beginning in 2023-2024, higher growth than competitors, and further evidence of Hilton’s unique business model.
We believe that Hilton will continue to grow its market share over time given independent hotels’ increased interest in seeking an affiliation with global brands, particularly in the wake of the pandemic. While the recovery may continue to be uneven, Hilton has made tremendous progress which will help it become an even more profi table and stronger business going forward.”
2. Chipotle Mexican Grill, Inc. (NYSE:CMG)
Bill Ackman’s Pershing Square’s Stake Value: $2,026,035,000
Percentage of Bill Ackman’s Pershing Square’s 13F Portfolio: 21.4%
Number of Hedge Funds: 39
Chipotle Mexican Grill, Inc. (NYSE:CMG) is a fast-casual restaurant specializing in burritos and tacos made in front of the customer. Chipotle Mexican Grill, Inc. (NYSE:CMG) owns 2,888 restaurants globally and has opened at eight new locations in Canada. The company is now working on opening new restaurants in the UK, France, and other European countries.
In 2020, Chipotle Mexican Grill, Inc. (NYSE:CMG) was able to increase its revenues by over 7%, at a time when the revenue of the restaurant industry fell by over 15% due to Covid-19 restrictions. The increase can be attributed to Chipotle Mexican Grill, Inc.’s (NYSE:CMG) swift adoption of digital services for its customers. The fast-casual restaurant digitalized all its locations, increased its partnership with third-party delivery services, and added more Chipotlanes that were solely focused on picking up online orders. As a result, the contribution of online orders increased to 46.2% of the company’s total revenue in 2020 as opposed to 10.9% in 2019.
Nicole Miller at Piper Sandler maintained an Overweight rating on Chipotle Mexican Grill, Inc. (NYSE:CMG) with a price target of $2,600 ahead of Q4 2021 results. Chipotle’s stock has lost 20% of its value since late December due to concerns related to the pandemic. However, this does not change the long-term positive outlook of the company along with its strong fundamentals. The analyst thinks that the same-store sales expectations are achievable, and the FY22 estimate of 5% is conservative.
Pershing Square Holdings, Ltd. mentioned Chipotle Mexican Grill, Inc. (NYSE:CMG) in its Q2 2021 investor letter. Here’s what the firm said:
“Chipotle’s track record of superb performance has continued in 2021, driven by ongoing strength in digital sales and a recovery of in-store ordering. Digital gains achieved during the pandemic have proven resilient, with digital sales growing 11% in Q2 compared with the prior year, highlighting the limited overlap with in-person occasions. The company has now recovered about 70% of its pre-pandemic in-restaurant sales volumes, with the opportunity to drive these sales meaningfully higher once more schools and workplaces reopen after Labor Day. Near-term performance is accelerating, with management forecasting same-store sales growth from 2019 levels in the low- to mid-20% range in Q3, up from 18% growth last quarter.
In May, Chipotle announced that they would increase hourly wages to a national average of $15 by the end of June, and advertised a path for a new employee to earn an annual income of $100,000 in as little as three and a half years. This resonated extremely well with existing and prospective employees, with staffing levels now above 2019 levels following some previously pronounced labor shortages that limited sales. Chipotle increased menu prices by 3.5% and 4.0% to cover the wage increase, and has not seen any customer resistance, demonstrating the significant pricing power enabled by Chipotle’s brand strength and attractive customer value proposition.
During the second quarter, Chipotle exceeded its 2015 peak average restaurant sales of $2.5 million, a significant milestone in the company’s transformation under the current management team. Management is confident in the growth strategies that will take Chipotle to the next leg of its journey – $3 million in average restaurant sales. Key levers to achieve this objective over the next several years include: (1) disciplined menu innovation, with smoked brisket to come following the successful launch of the quesadilla, (2) data utilization from the company’s 23-million-member loyalty program, (3) throughput improvements as employees and customers reacclimate to in-person ordering, and (4) the expansion of the Chipotlane digital drive-thru format to a higher percentage of the store base. Longer-term, management sees the opportunity to drive average unit volumes substantially above $3 million while also more than doubling the store base to 6,000 restaurants.”
1. Lowe’s Companies, Inc. (NYSE:LOW)
Bill Ackman’s Pershing Square’s Stake Value: $2,076,571,000
Percentage of Bill Ackman’s Pershing Square’s 13F Portfolio: 21.94%
Number of Hedge Funds: 60
Lowe’s Companies, Inc. (NYSE:LOW) is one of the biggest home improvement retailers in the world. The Mooresville, North Carolina-based corporation entertains 20 million customers per week through its retail presence in 2,200 locations across the US and Canada. The company has a workforce of over 300,000 employees. Lowe’s Companies, Inc. (NYSE:LOW) provides a wide range of products for construction, decorating, maintenance, repair, and remodeling to do-it-yourself (DIY) customers or professional contractors.
On January 18, Steven Zaccone at Citi increased the price target on Lowe’s Companies, Inc. (NYSE:LOW) from $270 to $292 and maintained a Buy rating on the stock. The analyst thinks that the investor sentiment has shifted to “defensive, stable margin businesses” like automobile parts retail and home improvement. Zaccone sees very low chances of error in regards to valuation for the hardlines retailing entities. The analyst also expects attractive risk and reward opportunities for long-term investors following the recent decline in the stock price of growth stocks.
In the last year, the stock price of Lowe’s Companies Inc. (NYSE:LOW) has increased by over 36% and has outperformed the S&P 500 Index, which experienced an increase of nearly 21.5% during the same period.
The hedge fund restarted a long position in Lowe’s Companies, Inc. (NYSE:LOW) in Q2 2018 with 7.72 million shares. Lowe’s Companies, Inc. (NYSE:LOW) is also a member of the Dividend Aristocrat list as it has been increasing its dividend for the past 47 consecutive years. The stock’s one-year forward dividend yield stands at 1.36% as of January 20.
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