Bill Ackman‘s Pershing Square is well-known for holding a concentrated equity portfolio with a few, but rather large, positions. One of the 140 Biggest and Most Famous Activist Hedge Funds in the world, Pershing Square usually accumulates a large stake in a company and then gets involved in reshaping it, in this way creating catalysts that stimulate growth. Even though this approach made Ackman one of the most successful and most followed activists on Wall Street a couple of years ago, recently Ackman’s fund has registered a reversal following substantial losses, the most noteworthy of which were from its bet on Valeant Pharmaceuticals and short position in Herbalife. According to Pershing’s third-quarter letter to investors released in December, Pershing Square Holdings, Ltd. lost 13.5%, net of fees, in the first 11 months of 2016 after having lost over 16% in 2015.
In the latest round of 13F filings, Pershing Square reported a 13F portfolio worth $5.91 billion as of the end of December, versus $5.41 billion a quarter earlier. The portfolio didn’t contain many changes, as the fund didn’t initiate any positions, and sold off just one holding. In addition, Pershing boosted its exposure to one company, but reduced its stakes in three other stocks. In this article, we are going to take a closer look at some of the holdings in Pershing’s 13F portfolio.
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Pershing’s stake in Restaurant Brands International Inc (NYSE:QSR) remained its top holding heading into 2017, as the fund left the position unchanged at 39.15 million shares, while their value advanced to $1.87 billion from some $1.75 billion reported as of the end of September. Pershing has held shares of the company that was formed following the merger of Burger King and Tim Hortons since it started trading in December 2014 (it was a shareholder of Burger King) and has seen the stock appreciate by nearly 60% since then. In the last several quarters, Restaurant Brands International Inc (NYSE:QSR) managed to post better-than-expected EPS, while its revenue missed expectations by a narrow margin in several quarters. In its third-quarter letter to investors, Pershing Square praised the company’s financial results as well as its managers’ work at improving Tim Hortons’ cost structure. Another shareholder of Restaurant Brands International Inc (NYSE:QSR) is billionaire Warren Buffett’s Berkshire Hathaway, which held 8.44 million shares at the end of 2016.
After having initiated a $230 million stake in Chipotle Mexican Grill, Inc. (NYSE:CMG) during the third quarter, Pershing Square boosted it by over 400% in the following three months, reporting ownership of 2.88 million shares worth $1.09 billion as of the end of 2016. In the aforementioned investor letter, the fund said that it had been following the company for years, but the decision to get into the company was made after Chipotle’s stock fell following food safety issues. Chipotle Mexican Grill, Inc. (NYSE:CMG)’s stock lost 15% last year, including a 12% decline registered in the fourth quarter. Following those food safety issues, Chipotle struggled with weak sales, but last month it posted a 14.7% jump in same-restaurant sales in December, versus a 30% drop a year earlier. Nevertheless, for the fourth quarter, Chipotle posted EPS of $0.55, lower than the estimates of $0.57, while revenue of $1 billion missed expectations by $40 million. Chipotle also has big plans to win back customers this year, which includes more advertising and promotion of online ordering. David Blood and Al Gore’s Generation Investment Management reported ownership of some 568,300 shares of Chipotle Mexican Grill, Inc. (NYSE:CMG) in its latest 13F filing.
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We’ll check out three more of Ackman’s fourth-quarter moves on the next page.
Mondelez International Inc (NASDAQ:MDLZ)‘s stock slid down to the third spot in Pershing’s 13F portfolio after the fund increased its exposure to Chipotle. The position in Mondelez was left unchanged at 22.94 million shares worth $1.02 billion at the end of December, slightly higher than the $1 billion it was reportedly worth as of the end of the third quarter. Mondelez International Inc (NASDAQ:MDLZ)’s stock inched up by 1% last year as the company’s global business suffered from macroeconomic headwinds, especially in emerging markets, but Pershing is optimistic that the food company’s outlook is robust, particularly in emerging markets where it has large market share. In the letter, Ackman’s fund pointed out that Mondelez’ cost-saving initiatives are helping it remain on track to reach margins of 17% to 18% in 2018, with further upside in the following years. During the fourth quarter, Nelson Peltz‘s Trian Partners cut its stake in Mondelez International Inc (NASDAQ:MDLZ) by 3.80 million shares to 44.23 million shares.
Let’s move on to a company in which Pershing trimmed its position between October and December. As Valeant Pharmaceuticals Intl Inc (NYSE:VRX)‘s stock continued its slide and lost over 40% during the fourth quarter, Pershing Square cut its stake in the company by 16% to 18.11 million shares worth $263.02 million. Valeant has been one of the worst bets made by Ackman, as the stock has slid by over 90% since March 9, when Pershing disclosed a stake in the company for the first time. Yesterday it was announced that the US Food and Drug Administration approved Valeant’s Siliq drug for the treatment of moderate-to-severe plaque psoriasis. The company expects to start marketing the drug in the U.S. in the second-half of 2017. The stock gained around 5% on Wednesday following the news, but today it is back in red territory, losing over 2%. According to its letter to investors, Pershing considers Valeant’s plan to sell assets to be an important “catalyst for value creation and stock price appreciation”. Aside from Pershing Square, a fund that owns a substantial position in Valeant Pharmaceuticals Intl Inc (NYSE:VRX) is John Paulson’s Paulson & Co., which disclosed holding 19.38 million shares in its latest 13F filing
Finally, the only position that Pershing closed during the fourth quarter was in Zoetis Inc (NYSE:ZTS), in which the fund held around 2.72 million shares at the end of September, after having dumped 18.46 million shares during the third quarter. The fact that Pershing exited its investment in the veterinary drugs company is not news, as it announced the move in the letter. The fund added that the bet on Zoetis had a positive contribution to its returns due to a “high successful activist engagement” and even though it represents a high quality business, the position was closed to “free up capital for new commitments”.
Zoetis Inc (NYSE:ZTS)’s stock has gained around 33% between November 10, 2014, when Pershing Square disclosed a stake in the company, and the end of 2016. The company managed to post generally better-than-expected results over the last several quarters, including EPS of $0.47 on revenue of $1.28 billion for the fourth quarter of 2016, topping estimates by $0.02 and $10 million, respectively. However, the company also cut its guidance for 2017 and said it expects EPS between $2.26 and $2.36, versus the previous estimate range of $2.28 to $2.38, while its revenue forecast was cut to between $5.1 billion and $5.22 billion from the previous range of $5.15 billion to $5.28 billion. The company said the guidance was updated to reflect exchange rates as of the end of January. Paul Marshall and Ian Wace’s Marshall Wace LLP cut its stake in Zoetis Inc (NYSE:ZTS) by 35% to 8.30 million shares between October and December.
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