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Feb 5, 2020

Bill Ackman sells stake in Starbucks after Pershing makes 73% return

Starbucks CEO on Earnings, China Closures and Sustainability

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Activist investor Bill Ackman has exited his position in Starbucks Corp., arguing in his annual investor presentation that the company is now “firing on all cylinders” after a successful turnaround.

The billionaire said in the presentation Wednesday that Pershing Square Capital Management’s investment in the Seattle-based coffee giant returned 73 per cent over 19 months. Prospective returns could “become more modest,” he said.

Starbucks “should continue to generate robust earnings growth through one of the world’s most dominant, attractive and profitable brands,” according to the presentation.

Starbucks fell as much as 2 per cent in New York trading Wednesday. The shares were trading at US$87.40, down 1.1 per cent, at 12:55 p.m.

Starbuck’s U.S. same-stores sales have surpassed his expectations, with average growth of 5 per cent over the course of Pershing Square’s investment, Ackman said, crediting cold beverage innovation as well as in-store operations. He also highlighted an “impressive” performance in China despite intense competition and bold actions by management to improve investor returns, including share buybacks.

Discussing his investment in Agilent Technologies Inc. for the first time, Ackman said the company is undervalued and that his firm built its position at an average cost of US$76.58 per share, or a 10 per cent discount to current levels. In November, he said his stake in the life sciences equipment maker amounted to about 8 per cent to 9.5 per cent of Pershing Square’s portfolio, or roughly US$665 million at the time. He didn’t disclose the size of the position Wednesday.

“We believe Agilent’s current valuation represents a discount to intrinsic value and does not fully reflect the company’s high-quality business model, increasing mix of recurring revenue, strong long-term growth potential and significant margin expansion opportunity,” the presentation states.

He said he believes there’s potential for a 800 basis point margin improvement at the company based on its best-in-class peers, and that the company could take on more debt to generate more capital.

Pershing Square finished 2019 with its strongest performance on record, reporting a 58 per cent return on its investments. Big gains were made on its investments in Chipotle Mexican Grill Inc., Hilton Worldwide Holdings Inc., Fannie Mae, Freddie Mac and others, it said. The firm had roughly US$8.6 billion in assets under management at year end.

The first month of 2020 hasn’t been as strong, with the firm reporting a 1.3 per cent decline on investments through Jan. 31, according to its website.

 

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