"Tracking Bill Ackman’s Pershing Square Portfolio – Q2 2019 Update"
"Bill Ackman’s 13F portfolio value decreased marginally from $6.72B to $6.71B this quarter.Pershing Square added Berkshire Hathaway during the quarter.The largest three 13F positions are Chipotle Mexican Grill, Restaurant Brands International, and Hilton Worldwide Holdings. They together account for ~52% of the portfolio.This article is part of a series that provides an ongoing analysis of the changes made to Pershing Square’s 13F portfolio on a quarterly basis. It is based on Ackman’s regulatory  filed on 08/14/2019. Please visit our  article for an idea on how his holdings have progressed over the years and our  for the fund’s moves during Q1 2019.Ackman’s 13F portfolio value decreased marginally from $6.72B to $6.71B this quarter. The number of positions remained steady at 8. The portfolio remains heavily concentrated with a few huge bets. The top three positions account for ~52% of the total portfolio value: Chipotle Mexican Grill, Restaurant Brands International, and Hilton Worldwide Holdings.In addition to partner stakes, the fund also invests the capital from Pershing Square Holdings (PSHZF), a public entity that debut in Euronext Amsterdam in October 2014. This was set up primarily to increase the amount of capital invested that is permanent. Pershing Square Holdings has underperformed the S&P 500 since its EOY 2012 inception, although YTD return as of August 13, 2019 is very strong – up 48.9% compared to 18.2% for the S&P 500 index. Their original flagship fund’s (2004 inception) track record is outstanding with annualized returns at 14.4% compared to 8.6% for the S&P 500 index.To learn more about Bill Ackman, check-out the book “”.New Stakes:Berkshire Hathaway Inc. (BRK.A) (BRK.B): BRK.B is a ~11% of the portfolio position purchased this quarter at prices between $197 and $219 and the stock currently trades at ~$200. For investors attempting to follow, BRK.B is a good option to consider for further research.Note: Pershing Square's cost-basis on BRK.B is around $205 per share. They see opportunity to reduce the performance gap of BNSF & GEICO to their closest peers and expects earnings to grow at mid-teens over medium term, if Berkshire is able to improve operational performance and deploy cash.Stake Disposals:United Technologies (UTX): UTX was a ~11% of the 13F portfolio stake established in Q1 2018 at prices between $122 and $138 and increased by ~135% next quarter at prices between $118 and $128. Last three quarters had also seen a combined ~30% increase at prices between $101 and $142. This quarter saw the position disposed at prices between $123 and $143. The stock currently trades at ~$125.Note: As of last quarter, Pershing Square believed the upcoming three-way split should be a catalyst for significant share price appreciation: Otis Elevator, Climate, Controls, & Security (CCS), and Aerospace (UTC Aerospace Systems and Pratt & Whitney). Instead, United Technologies management chose a merger with Raytheon (RTN).  In response, Pershing Square exited at a slight gain.Stake Increases:None.Stake Decreases:Chipotle Mexican Grill (CMG): CMG is the largest position at ~20% of the portfolio. The stake was established in Q3 2016 at a cost-basis of ~$405 per share. The position was sold down by ~30% in Q3 2018 in the high-400s price-range and that was followed with a ~14% trimming over the last three quarters. The stock has doubled and currently trades at ~$817. Ackman harvested gains but still controls 6.4% of the business.Note: Pershing Square believes the business transformation is in still in the early stages – it has the potential for upwards of 25% margins (current margins are at 21%) and store-count doubling (current store-count is ~2500) in the coming years.Restaurant Brands International (QSR): QSR is currently the second-largest 13F position at ~16% of the portfolio. Pershing Square’s cost-basis is ~$16. Q3 2017 saw a ~32% selling at prices between $59 and $66. H1 2018 had also seen a ~22% reduction at prices between $53 and $64. There were minor ~6% trimmings each over the last two quarters and that was followed with a ~15% selling this quarter at prices between $65 and $70. The stock currently trades at $74.52.Note: Per Pershing Square’s Q1 2019 shareholder letter, same store sales growth and recognition of international opportunities should allow rerating.Lowes Companies (LOW): LOW is a large (top five) ~13% of the portfolio stake established in Q2 2018 at prices between $81 and $101 and increased by ~9% next quarter at prices between $95 and $117. Q4 2018 also saw a ~13% increase at prices between $86 and $114. The stock currently trades at $93.92. There was a ~7% trimming this quarter. For investors attempting to follow, LOW is a good option to consider for further research.Note: Per Pershing Square’s 2019 Interim Report, 4.2% same-store sales growth outperformed Home Depot (HD) but the margins are much lower – improvement from 9% to HD’s current 14.5% should be possible. As transformation progresses, the valuation should improve.Starbucks Corp. (SBUX): The ~11% SBUX stake was established last October at a cost-basis of ~$51 per share compared to the current price of $96.52. This quarter saw a ~7% trimming. Per their 2019 interim report, Pershing Square believes the current valuation of 30x 2020 estimated earnings is appropriate, given the company is firing on all cylinders.Kept Steady:Hilton Worldwide Holdings (HLT): The large ~16% portfolio stake was established last October. It was purchased at prices between $64 and $78 and the stock currently trades well above that range at $93. There was marginal increase last quarter.Note: In Q4 2018, Hilton Worldwide Holdings came back in to the portfolio after a gap of eighteen months. The previous position was purchased in Q3 2016 and disposed a year later. Pershing Square has said that the new position was acquired at a better valuation compared to their previous purchase. This is despite the fact that the business structure has transformed into a capital-light model as a result of the spinoff in early 2017 of Park Hotels & Resorts (PK) and Hilton Grand Vacations (HGV). Large unit development pipeline and buybacks should allow mid-teens growth.Automatic Data Processing (ADP): ADP is a large ~10% of the 13F portfolio stake established in Q2 2017 at a cost-basis of ~$97 and increased by around four-times in the following quarter at prices between $101 and $119. The stock is now at ~$167. There was a ~10% trimming in Q1 2018 at prices between $108 and $124 and another ~47% selling in the following quarter at prices between $113 and $140. Since then, the activity has been minor. Their average entry price was around $105 per share.Note 1: Per Pershing Square’s Q2 2019 Interim Report, ADP was exited after the quarter ended. They realized a stunning ~40% annualized return during their holding period. That return was helped by the leveraged long positioning using options.Note 2: In November 2017, Pershing Square lost a proxy battle at ADP – his three board nominations (including him) were rejected.Howard Hughes Corp (HHC): HHC is a ~2% of the 13F portfolio position established in 2010 as a result of its spin-off from GGP Inc. (GGP). The stock has returned over 3x since the spinoff. Q3 2017 saw a one-third increase as a result of the conversion of warrants held. There was a ~53% selling (~2.5M shares) in February 2018 at ~$128 per share (underwriting agreement). That transaction was prompted to address FIRPTA issues at PSH. The stock is currently at ~$130. Q3 2018 saw a ~3% trimming and that was followed with a ~40% reduction next quarter at prices between $90 and $124. There was a ~3% trimming last quarter.Note: Regulatory filings from November show them having an economic interest of 5.4M shares of HHC (~12.6% of the business) including 4.17M notional common share exposure thru swaps that are not listed in the 13F.Fannie Mae (FNMA) and Freddie Mac (FMCC) are other long positions in the partnership - the holdings were disclosed in 13D filings on November 15, 2013 - as they are not , they are not listed in the 13F report. Ackman held just under 10% of the outstanding shares of both these businesses - 115.57M shares of FNMA at a cost-basis of $2.29 and 63.5M shares of FMCC at a cost-basis of $2.14. The combined investment outlay was ~$400M. FNMA & FMCC currently trade at $2.28 and $2.21 per share respectively. In March 2018, Pershing Square said their Fannie/Freddie pfds now amounts to 21% of the total investment in the two GSEs. They said it is a hedge in case the resolution favors pfds more than the common. Regarding the delay in publishing Trump Administration’s Housing Reform Plan, Pershing Square believes it has to do with pressing commitments such as trade negotiations rather than any change in priority.The spreadsheet below highlights changes to Pershing Square’s 13F stock holdings in Q2 2019:Regulatory Filings thru 5/18/2019: Form 4 – 4/2 – HHC – minor disposal at ~$110, CMG – minor disposal at ~$710.5/17/2019 –  – Performance – 36.9% in Q1 2019 compared to 13.9% for S&P. CMG at 10.1% is by far the largest contributor. CMG – despite 63% YTD increase, they believe transformation is early stages – upwards of 25% margins from 21% currently and store count increase provide a runway for superlative sales and profits for years to come. ADP – up 21% YTD – opportunity to grow top-line revenue as well as margin expansion – should allow mid-to-high teens growth rate for many years. QSR – although it is up 28% YTD, shares at 23 times 2019 estimated FCF trade at a discount to Yum & McDonalds at 26 to 27 times. LOW – up 16% YTD – 17 times 2019 earnings estimate – should appreciate as the business transformation becomes more evident and the performance gap with HD is narrowed. SBUX – up 21% YTD – 26-times forward earnings is inline with recent historical averages. Prospects are compelling at mid-teens EPS growth is possible for many years to come. HLT – up 28% YTD. It trades at 24 times 2019 estimated earnings which is a discount to historical average. UTX – up 27% YTD, but trades at less than 16 times estimate of pro-forma earnings – ~30% sum-of-parts discount to its peers. HHC – up 9% YTD. Continues to believe it trades at a large discount to its underlying NAV per share. Fannie/Freddie Common/Pfds – Common up ~140% and Pfds ~66% YTD – progress in housing finance reform plans. EXIT – Platform Specialty Products."