The Morning Brief: Ackman’s Pershing Square Back in the Black

April 27, 2017   Stephen Taub


The activist manager got a boost from Restaurant Brands and Chipotle — and cutting his losses in Valeant.

Imagine if Bill Ackman had gone long Herbalife and short Valeant Pharmaceuticals. Investors would be hailing him king of the hedgies, or close to it. Oh well. In any case, Pershing Square Holdings, his publicly traded fund, has moved back into the black as of the end of Tuesday and is up 3 percent for the year after posting a 5.7 percent gain for the month through April 25.

It helps that last month he finally threw in the towel on his huge losing position in Valeant, whose stock has continued to tumble since then. On the other hand, Herbalife, the multi-level marketer of nutrition and health-related products that Ackman insists is a Ponzi scheme, is quietly up more than 25 percent for the year-to-date, closing Wednesday at $63.10.

Rather, health-conscious Ackman benefitted from by far his largest long position, Restaurant Brands International, owner and franchiser of Tim Hortons and Burger King restaurants, which rose nearly 5 percent for the April period, and his number two position, Chipotle Mexican Grill, whose stock was up nearly 6 percent for the month through April 25. Pershing Square Capital Management was the second largest shareholder at year-end.

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Meanwhile, shares of Chipotle jumped another 2.4 percent on Wednesday, to close at $482.99. Several investment banks raised their price targets on the stock after the restaurant chain reported quarterly earnings that blew by consensus forecasts. Barclays, for example, raised its price target from $395 to $415 but maintained its equal weight rating. It points out that optimistic investors had already lifted the shares by 19 percent since March 20 alone, compared with a 1 percent decline in the Standard & Poor’s 500 stock index during that period. "Ultimately, results exceeded formal sell-side expectations, while relatively in-line with our view," the bank tells clients in a note.

Credit Suisse said it hiked its price target from $375 to $425 and raised its earnings estimates, "to reflect better-than-expected profit recovery" in the first quarter. However, it maintained its neutral rating on the stock, which trades above the target. "The pace of recovery should moderate from here," it adds, as sales and other comparisons return to normal patterns.

At year-end, the stock was also the second-largest U.S. long position of Tybourne Capital Management, the seventh-largest holder of the common shares.

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Shares of Buffalo Wild Wings fell more than 3 percent in after-hours trading on Wednesday after the casual dining chain reported quarterly earnings that came in well below analyst expectations. This miss plays right into the hands of activist Marcato Capital Management, which has launched a contentious proxy fight with the company.

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Credit Suisse raised its price target on Caterpillar from $111 to $123 and lifted its estimates after the heavy equipment maker posted very strong earnings on Tuesday. "CAT is off to a great start and set up well for 2017," the bank tells clients. As we reported, Greenlight Capital has a losing short position in the stock. Interestingly, one is hard-pressed to find a hedge fund with a meaningful long position in the stock.

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Elliott Management Corp.’s Menlo Park affiliate Evergreen Coast Capital led an investment in ASG Technologies, an enterprise IT software company, according to a press release. Elliott also said it plans to make additional investments in the company, which specializes in products in content management, systems management, workspaces and enterprise data intelligence.

"ASG’s leadership has transformed the business into a leading global software provider with exciting growth investments in its product lines," said Jesse Cohn, senior portfolio manager of Elliott, in the press release. Evergreen focuses on technology investing.


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