Bill Ackman’s Portfolio

Bill Ackman - Perishing Square Capital Management Portfolio

Bill Ackman - Perishing Square Capital Management Q3 2024 Portfolio

Perishing Square Capital Management, a hedge fund managed by Bill Ackman, disclosed 10 security holdings in their SEC 13F filing for the third quarter of 2024, with a total portfolio value of $12,909,898,000

Bill Ackman’s Pershing Square Capital Management Q3 2024 portfolio analysis

BN – Brookfield Corp.
Portfolio Allocation: 13.48%
Recent Activity: Added 377.58%
Shares Held: 32,735,883
Reported Price: $53.15 per share
Value at Reported Price: $1,739,912,000

Brookfield Corp. saw a substantial addition, making it the largest position in Ackman’s portfolio. Brookfield is a leading global asset manager with investments across real estate, renewable energy, infrastructure, and private equity. This significant increase reflects Ackman’s confidence in Brookfield’s diversified assets and growth potential.

HLT – Hilton Worldwide Holdings
Portfolio Allocation: 13.16%
Recent Activity: Reduced 17.67%
Shares Held: 7,370,168
Reported Price: $230.50 per share
Value at Reported Price: $1,698,824,000

Hilton, a long-standing investment in Ackman’s portfolio, saw a reduction in shares, indicating a potential profit-taking or rebalancing decision. As one of the world’s leading hospitality companies, Hilton remains a significant position, benefiting from global travel recovery and high brand recognition.

CMG – Chipotle Mexican Grill Inc.
Portfolio Allocation: 12.86%
Recent Activity: No change reported
Shares Held: 28,815,165
Reported Price: $57.62 per share
Value at Reported Price: $1,660,330,000

Chipotle remains a core holding with no recent change in allocation. Known for its commitment to quality ingredients and innovation in fast-casual dining, Chipotle has been a strong performer, with growth driven by digital sales and new restaurant openings.

QSR – Restaurant Brands International
Portfolio Allocation: 12.85%
Recent Activity: Reduced 0.61%
Shares Held: 23,000,914
Reported Price: $72.12 per share
Value at Reported Price: $1,658,826,000

Restaurant Brands International, the parent company of Burger King, Tim Hortons, and Popeyes, remains a key holding with a minor reduction. This position reflects Ackman’s continued interest in the fast-food industry, benefiting from strong brand recognition and a global customer base.

HHH – Howard Hughes Holdings Inc.
Portfolio Allocation: 11.31%
Recent Activity: No change reported
Shares Held: 18,852,064
Reported Price: $77.43 per share
Value at Reported Price: $1,459,715,000

Howard Hughes Holdings is a real estate development and management company, focusing on master-planned communities and commercial properties. Its stable position in the portfolio suggests Ackman’s confidence in its potential for growth in high-demand real estate markets.

NKE – NIKE Inc.
Portfolio Allocation: 11.15%
Recent Activity: Added 435.51%
Shares Held: 16,280,338
Reported Price: $88.40 per share
Value at Reported Price: $1,439,182,000

NIKE saw a significant increase in shares, marking a new high-conviction bet. As a global leader in athletic footwear and apparel, NIKE’s brand strength and innovation provide potential for long-term growth, aligning with Ackman’s strategy.

CP – Canadian Pacific Kansas City
Portfolio Allocation: 9.86%
Recent Activity: Reduced 0.59%
Shares Held: 14,877,651
Reported Price: $85.54 per share
Value at Reported Price: $1,272,634,000

Canadian Pacific Kansas City, a major railroad operator, saw a slight reduction. This company provides critical freight transportation across North America, benefiting from trade and infrastructure development. Ackman’s holding in CP reflects a strategic interest in the transportation sector.

GOOG – Alphabet Inc. CL C
Portfolio Allocation: 9.77%
Recent Activity: No change reported
Shares Held: 7,547,582
Reported Price: $167.19 per share
Value at Reported Price: $1,261,880,000

Alphabet’s Class C shares remain a substantial part of the portfolio. Alphabet, with its leading position in digital advertising and investments in cloud and AI, aligns with Ackman’s interest in high-growth technology companies.

GOOGL – Alphabet Inc.
Portfolio Allocation: 5.12%
Recent Activity: No change reported
Shares Held: 3,986,488
Reported Price: $165.85 per share
Value at Reported Price: $661,159,000

The Class A shares of Alphabet provide additional exposure to the tech giant, with a strong focus on digital innovation and diversification. The dual holding underscores Ackman’s high conviction in Alphabet’s future growth potential.

SEG – Seaport Entertainment Group
Portfolio Allocation: 0.44%
Recent Activity: New Buy
Shares Held: 2,094,673
Reported Price: $27.42 per share
Value at Reported Price: $57,436,000

Seaport Entertainment Group is a new addition, representing a small stake in the portfolio. This investment might indicate Ackman’s interest in the entertainment sector, exploring potential growth in leisure and entertainment as consumer spending in these areas recovers.

Analysis of Bill Ackman’s Q3 2024 Portfolio Strategy

1. Significant Shift Toward Brookfield Corp and NIKE

The large additions to Brookfield and NIKE showcase Ackman’s focus on diversified assets and iconic brands with growth potential. These moves indicate a strategic pivot to high-conviction investments in asset management and consumer goods.

2. Balanced Exposure to Hospitality, Real Estate, and Fast-Casual Dining
Holdings in Hilton, Howard Hughes, and Chipotle underscore Ackman’s interest in industries poised for recovery or stable growth, with a strong emphasis on real estate, hospitality, and dining.

3. Continued Focus on Technology and Innovation
The substantial position in Alphabet (Class C and Class A shares) shows Ackman’s confidence in Alphabet’s role in tech innovation, particularly in digital advertising, cloud services, and artificial intelligence.

Conclusion
Bill Ackman’s Q3 2024 portfolio for Pershing Square Capital Management emphasizes high-conviction bets in asset management, iconic consumer brands, and technology. The portfolio reflects a balanced approach, capturing potential growth in hospitality, real estate, and fast-casual dining, while also reinforcing his commitment to tech and diversified assets. This combination positions Pershing Square to capitalize on both economic resilience and industry-specific growth opportunities.

Hilton Worldwide Holdings Inc. (HLT) Stock Analysis

Market Capitalization: $57.56 Billion
Shares Outstanding: 243.78 Million
Sector: Consumer Discretionary
Industry: Hotels, Resorts & Cruise Lines
Analysis as of: October 28, 2024

1. Company Overview

Hilton Worldwide Holdings Inc. (NYSE: HLT) is one of the world’s largest hospitality companies, operating a portfolio of 18 brands comprising more than 6,800 properties and over 1 million rooms in 122 countries and territories. Founded in 1919 and headquartered in McLean, Virginia, Hilton offers a range of accommodations, from luxury hotels and resorts to extended-stay suites and mid-priced hotels.

Key Business Segments:

Management and Franchise Fees:
- Hilton primarily operates under a fee-based model, generating revenue through management and franchise fees from its hotel properties.
Ownership Segment:
- Owns, leases, and operates hotel properties, although this segment has been reducing as Hilton focuses more on asset-light strategies.

Strategic Highlights:

Asset-Light Business Model: Transitioning towards a franchised and managed model to reduce capital expenditure and increase return on invested capital.
Brand Expansion: Continual development and introduction of new brands to capture diverse market segments.
Digital Initiatives: Investment in technology platforms to enhance customer experience and loyalty programs.
Global Expansion: Focus on growing presence in emerging markets and strengthening position in key international destinations.

2. Financial Performance

a. Revenue and Growth

Trailing Twelve Months (TTM) Revenue (as of September 30, 2024): $4.70 Billion
Year-over-Year (YoY) Revenue Growth (TTM): +8.38%

Analysis:

Recovery from Pandemic Impact: Revenue has been recovering steadily after the significant decline in 2020 due to the COVID-19 pandemic.
Growth Momentum: The positive revenue growth reflects increased travel demand and higher occupancy rates as global travel restrictions ease.
Revenue Composition: The majority of Hilton’s revenue comes from franchise and management fees, which are less capital-intensive.

b. Profitability

Net Income (TTM): $1.18 Billion
Earnings Per Share (EPS, TTM): $4.65
Profit Margin: 25.07%
Return on Assets (ROA): 9.08%
Return on Equity (ROE): n/a (Negative equity)

Analysis:

Strong Profitability: Profit margin of 25.07% indicates efficient operations and strong profitability.
EPS Growth: EPS has decreased by 6.08% YoY, which may be due to share buybacks reducing the number of shares outstanding.
Negative Equity: The company’s shareholders’ equity is negative, which can affect the calculation of ROE and may indicate high levels of debt or share repurchases exceeding retained earnings.

c. Margins

Gross Margin (TTM): 76.04%
Operating Margin (TTM): 49.35%
EBITDA Margin (TTM): 52.33%

Analysis:

High Margins: Hilton’s margins are robust, reflecting the asset-light business model with a focus on management and franchise fees.
Operating Efficiency: Operating margin remains strong, demonstrating effective cost management.
EBITDA Strength: High EBITDA margin signifies strong earnings before non-cash expenses and interest, indicating good operational health.

d. Cash Flow

Operating Cash Flow (TTM): $1.90 Billion
Capital Expenditures (CapEx, TTM): – $90 Million
Free Cash Flow (FCF, TTM): $1.81 Billion
Free Cash Flow Margin: 38.47%
Free Cash Flow Per Share: $7.41

Analysis:

Strong Cash Generation: High free cash flow provides flexibility for debt repayment, dividends, and share repurchases.
Low CapEx: Minimal capital expenditures align with the asset-light strategy, reducing capital intensity.
Cash Flow Stability: Free cash flow has remained relatively stable, decreasing slightly by 1.53% YoY.

3. Balance Sheet

Total Assets (as of September 30, 2024): $16.69 Billion
Total Liabilities: $20.12 Billion
Shareholders’ Equity: – $3.43 Billion (Negative equity)
Total Debt: $11.96 Billion
Cash and Cash Equivalents: $1.58 Billion
Net Debt: $10.38 Billion
Debt-to-EBITDA Ratio: 4.64
Current Ratio: 0.80
Quick Ratio: 0.71

Analysis:

Negative Shareholders’ Equity: This is primarily due to significant share repurchases and accumulated deficits, which have reduced retained earnings.
Leverage: The company has a high debt load, with a debt-to-EBITDA ratio of 4.64, indicating substantial leverage.
Liquidity Position: Current and quick ratios below 1 suggest potential short-term liquidity constraints.
Debt Management: Despite high debt levels, the company’s strong free cash flow aids in servicing debt obligations.

4. Valuation

Current Stock Price (as of October 25, 2024): $236.11
Price-to-Earnings (PE) Ratio (TTM): 50.77
Forward PE Ratio: 30.80
Price-to-Sales (PS) Ratio: 12.61
Price-to-Book (PB) Ratio: n/a (Negative equity)
Price-to-Free Cash Flow (P/FCF) Ratio: 31.87
Enterprise Value (EV): $67.98 Billion
EV/EBITDA Ratio: 27.67
PEG Ratio: 2.32

Analysis:

High Valuation Multiples: The high PE and EV/EBITDA ratios indicate that the stock is trading at a premium compared to earnings.
Forward PE Improvement: The lower forward PE suggests expectations of earnings growth in the future.
PEG Ratio: A PEG ratio of 2.32 implies that the stock may be overvalued relative to its earnings growth rate.
Market Sentiment: The premium valuation reflects investor confidence in Hilton’s growth prospects and recovery post-pandemic.

5. Market Performance

52-Week Range: $148.25 – $240.00
52-Week Price Change: +57.78%
Beta: 1.31

Analysis:

Strong Stock Performance: Significant price appreciation over the past year indicates positive investor sentiment.
Higher Volatility: A beta of 1.31 suggests the stock is more volatile than the overall market.
Near 52-Week High: Trading near the 52-week high reflects market optimism about the company’s performance.

6. Financial Health and Risks

a. Liquidity

Current Ratio: 0.80
Quick Ratio: 0.71

Analysis:

Below Industry Average: Ratios below 1 indicate that current liabilities exceed current assets, which may pose short-term liquidity challenges.
Working Capital Deficit: Negative working capital of $918 million suggests reliance on operating cash flow or refinancing to meet short-term obligations.

b. Leverage

Total Debt: $11.96 Billion
Debt-to-EBITDA Ratio: 4.64
Interest Coverage Ratio: 4.32

Analysis:

High Leverage: Elevated debt levels increase financial risk, especially in economic downturns.
Interest Coverage: An interest coverage ratio of 4.32 indicates the company can cover its interest expenses, but a higher ratio is generally preferred for comfort.

c. Profitability and Efficiency

Return on Assets (ROA): 9.08%
Return on Invested Capital (ROIC): 17.77%
Asset Turnover: 0.29

Analysis:

Efficient Use of Capital: High ROIC indicates effective deployment of capital investments.
Asset Efficiency: Asset turnover ratio suggests moderate efficiency in generating revenue from assets.

d. Operational Risks

Dependence on Travel Industry: Revenue is highly sensitive to travel demand, which can be affected by economic conditions, pandemics, or geopolitical events.
Competition: Faces intense competition from other hotel chains and alternative lodging options like Airbnb.
Brand Reputation: Success depends on maintaining strong brand recognition and customer loyalty.

e. Market Risks

Economic Cycles: Susceptible to economic downturns that reduce discretionary spending on travel and lodging.
Interest Rate Risk: Rising interest rates can increase borrowing costs and impact profitability.
Currency Fluctuations: International operations expose the company to exchange rate risks.

7. Conclusion

Pros:

Global Brand Recognition: Hilton is a well-established brand with a strong global presence.
Asset-Light Model: Focus on franchising and management contracts reduces capital expenditure and enhances margins.
Strong Cash Generation: Robust free cash flow supports debt servicing and shareholder returns.
Recovery Momentum: The hospitality industry is recovering from the pandemic, which could drive future growth.

Cons:

High Valuation: Elevated valuation multiples may limit upside potential and pose risk if growth expectations are not met.
Leverage Concerns: High debt levels increase financial risk, particularly in adverse economic conditions.
Negative Equity: Negative shareholders’ equity may be a red flag for some investors and complicates certain financial analyses.
Liquidity Constraints: Low current and quick ratios indicate potential short-term liquidity issues.

Disclaimer:

This analysis is for informational purposes only and does not constitute investment advice or a recommendation to buy or sell any securities. Investing involves risks, including the potential loss of principal. Past performance is not indicative of future results. Investors should conduct their own research or consult a qualified financial advisor before making investment decisions.

Chipotle Mexican Grill, Inc. (CMG) Stock Analysis

Chipotle Mexican Grill, Inc. (CMG) Stock Analysis

Ticker: CMG
Market Capitalization: $76.85 Billion
Enterprise Value: $79.64 Billion
Shares Outstanding: 1.37 Billion
Sector: Consumer Discretionary / Restaurants
Industry: Fast-Casual Dining

1. Company Overview

Chipotle Mexican Grill, Inc. (CMG) is a leading player in the fast-casual dining sector, renowned for its customizable Mexican-inspired menu, which includes burritos, burrito bowls, quesadillas, tacos, and salads. Founded in 1993 and headquartered in Newport Beach, California, Chipotle has expanded its footprint across the United States, Canada, France, Germany, and the United Kingdom. The company’s commitment to “Food with Integrity” emphasizes the use of high-quality, sustainably sourced ingredients, catering to health-conscious and environmentally aware consumers. Chipotle leverages technology through its app and website to enhance customer experience via delivery and related services.

2. Financial Performance

Revenue and Growth

Trailing Twelve Months (TTM) Revenue: $10.66 Billion
Revenue Growth (YoY): +14.85%

Chipotle has exhibited strong and consistent revenue growth, with a TTM revenue of $10.66 billion, reflecting a 14.85% increase year-over-year. This growth underscores the company’s ability to expand its market presence and capitalize on the rising demand for fast-casual dining options. Historically, Chipotle has maintained robust revenue growth rates, achieving annual increases of over 14% in recent years, driven by menu innovation, strategic expansions, and enhanced digital ordering capabilities.

Profitability

Net Income (TTM): $1.41 Billion
Profit Margin: 13.23%
Operating Income (TTM): $1.81 Billion
Operating Margin: 16.98%
EBITDA (TTM): $2.14 Billion
EBITDA Margin: 20.08%

Chipotle demonstrates solid profitability metrics. The company reported a net income of $1.41 billion for the TTM period, translating to a healthy profit margin of 13.23%. Operating income and EBITDA figures further highlight Chipotle’s operational efficiency, with margins of 16.98% and 20.08%, respectively. These positive margins indicate effective cost management and strong revenue generation within the competitive fast-casual dining landscape.

Earnings Per Share (EPS)

EPS (TTM): $1.02
EPS Growth (YoY): +26.43%

Chipotle maintains a commendable EPS of $1.02, with a year-over-year growth of 26.43%. This growth reflects the company’s increasing profitability and effective management strategies. Despite a slight deceleration in EPS growth, the company continues to deliver substantial earnings on a per-share basis, reinforcing its financial health.

3. Valuation Metrics

Trailing P/E Ratio: 55.20
Forward P/E Ratio: 48.05
Price-to-Sales (PS) Ratio: 7.23
Price-to-Book (PB) Ratio: 20.73
Price/Earnings to Growth (PEG) Ratio: 2.17
Enterprise Value to EBITDA (EV/EBITDA): 37.19
Enterprise Value to Free Cash Flow (EV/FCF): 61.20

Chipotle’s valuation metrics present a mixed perspective:

P/E Ratios: The trailing P/E of 55.20 and forward P/E of 48.05 are relatively high, suggesting that the stock is priced at a premium based on current and projected earnings. This could indicate investor optimism about the company’s future growth prospects.
PS and PB Ratios: With a PS ratio of 7.23 and a PB ratio of 20.73, Chipotle is trading at a significant premium relative to its sales and book value. These elevated ratios reflect strong market confidence but also imply that the stock may be overvalued compared to its fundamental metrics.
PEG Ratio: At 2.17, the PEG ratio suggests that the stock is fairly valued when considering its growth prospects. A PEG above 1 typically indicates overvaluation, though Chipotle’s consistent growth may justify this premium to some extent.
EV Ratios: The EV/EBITDA and EV/FCF ratios of 37.19 and 61.20, respectively, are on the higher side, indicating that the company is valued at a premium relative to its earnings and free cash flow.

Overall, while Chipotle showcases strong profitability and growth, its valuation metrics indicate that the stock is priced at a premium, which investors should weigh against the company’s growth potential.

4. Financial Position

Liquidity Ratios

Current Ratio: 1.71
Quick Ratio: 1.59

Chipotle maintains a healthy liquidity position, with a current ratio of 1.71 and a quick ratio of 1.59. These figures suggest that the company has sufficient short-term assets to cover its short-term liabilities, indicating effective working capital management and reduced liquidity risk.

Leverage Ratios

Debt-to-Equity Ratio: 1.15
Debt-to-EBITDA Ratio: 1.58
Debt-to-Free Cash Flow Ratio: 3.29

Chipotle’s leverage ratios indicate a moderate level of debt. A debt-to-equity ratio of 1.15 suggests that the company employs a balanced mix of debt and equity financing. The debt-to-EBITDA ratio of 1.58 and debt-to-free cash flow ratio of 3.29 reflect manageable debt levels relative to earnings and cash flow, though continued monitoring is essential to ensure financial flexibility.

Cash Position

Cash & Cash Equivalents: $1.49 Billion
Total Debt: $4.28 Billion
Net Cash Position: -$2.79 Billion

Chipotle has a net cash position of -$2.79 billion, indicating that its debt obligations exceed its cash reserves. While the company’s substantial cash reserves of $1.49 billion provide a buffer, the negative net cash position underscores the importance of effective debt management and the potential impact of interest rate fluctuations on financial stability.

5. Cash Flow Analysis

Operating Cash Flow (TTM): $1.88 Billion
Capital Expenditures (TTM): -$576.32 Million
Free Cash Flow (TTM): $1.30 Billion
Free Cash Flow Growth: +4.05% YoY
Free Cash Flow Margin: 12.20%
Free Cash Flow Per Share: $0.95

Chipotle generates strong operating cash flow of $1.88 billion, contributing to a substantial free cash flow of $1.30 billion. Despite a modest growth of 4.05% year-over-year, the free cash flow remains healthy, supporting ongoing capital investments, debt servicing, and potential shareholder returns through stock buybacks. The free cash flow margin of 12.20% indicates efficient conversion of revenue into cash.

6. Share Statistics and Ownership

Shares Outstanding: 1.37 Billion
Shares Change (YoY): -0.75%
Insider Ownership: 0.66%
Institutional Ownership: 87.69%
Float: 1.36 Billion

Chipotle has slightly reduced its shares outstanding by 0.75% year-over-year, which can enhance earnings per share and potentially support the stock price. High institutional ownership at 87.69% indicates strong confidence from large investors, while insider ownership remains low at 0.66%, suggesting limited direct control by company executives. The high float of 1.36 billion shares provides ample liquidity and broad market participation.

7. Stock Performance and Market Sentiment

52-Week Price Range: $35.37 – $69.26
Current Stock Price: $56.12
52-Week Price Change: +45.16%
Beta: 1.26
Relative Strength Index (RSI): 56.87
Average Volume (20 Days): 12,284,652
Short Interest: 2.35% of shares outstanding

Chipotle’s stock has appreciated significantly by 45.16% over the past 52 weeks, currently trading above the midpoint of its historical range. A beta of 1.26 indicates higher volatility compared to the broader market, suggesting that the stock is more sensitive to market movements. The RSI of 56.87 places the stock in a neutral zone, indicating balanced buying and selling pressure.

Short interest stands at 2.35%, reflecting limited bearish sentiment among investors. This relatively low short interest, coupled with strong institutional ownership, supports positive market sentiment and may contribute to further price appreciation, especially if the company continues to deliver solid financial performance.

8. Key Strengths and Opportunities

Strong Revenue Growth: Consistent year-over-year revenue growth of 14.85% demonstrates Chipotle’s ability to expand its market presence and capitalize on increasing demand for fast-casual dining.
Robust Profitability: High profit margins and substantial net income highlight effective cost management and strong revenue generation capabilities.
Positive Free Cash Flow: Significant free cash flow supports ongoing investments, debt reduction, and potential shareholder returns through stock buybacks.
High Institutional Ownership: Strong backing from institutional investors enhances market confidence and provides stability.
Global Expansion: Continued expansion into international markets offers growth opportunities and diversification of revenue streams.
Innovation and Technology Integration: Investments in digital ordering platforms, delivery services, and menu innovation can drive future growth and enhance customer experience.

9. Risks and Challenges

High Valuation Ratios: Elevated trailing P/E and PS ratios suggest that the stock is priced at a premium, which may limit upside potential if growth slows or market conditions deteriorate.
Debt Levels: A net cash position of -$2.79 billion indicates significant debt obligations, which could pose financial risks, especially in a rising interest rate environment or if cash flow generation weakens.
Economic Sensitivity: As a player in the fast-casual dining industry, Chipotle is sensitive to economic cycles, consumer spending trends, and discretionary income levels, which can impact sales and profitability.
Operational Risks: Factors such as supply chain disruptions, labor shortages, rising operational costs, and compliance with evolving health and safety regulations can affect profitability and operational efficiency.
Competitive Landscape: Intense competition from other fast-casual and quick-service restaurants, as well as emerging market players, may pressure Chipotle’s market share and pricing strategies.
Market Saturation: Continued expansion without adequate market demand can lead to saturation, impacting profitability and growth prospects.

10. Conclusion

Chipotle Mexican Grill, Inc. (CMG) presents a compelling investment opportunity characterized by strong revenue growth, robust profitability, and substantial free cash flow generation. The company’s strategic positioning within the fast-casual dining sector, coupled with its commitment to quality and innovation, supports its growth trajectory in a competitive market.

However, investors should be mindful of Chipotle’s high valuation ratios and moderate debt levels, which introduce financial risks and may limit potential upside. The company’s ability to sustain revenue growth, manage operational efficiencies, and navigate competitive pressures will be crucial for its continued success.

Disclaimer: This analysis is for informational purposes only and does not constitute financial advice. Investors should conduct their own research or consult with a financial advisor before making investment decisions.

Restaurants Brands International Inc. (QSR) Stock Analysis

Restaurant Brands International Inc. (QSR) Stock Analysis

Ticker: QSR
Market Capitalization: $22.39 Billion
Enterprise Value: $39.29 Billion
Shares Outstanding: 323.66 Million
Sector: Consumer Discretionary / Restaurants
Industry: Quick-Service Restaurants

1. Company Overview

Restaurant Brands International Inc. (QSR) is a global leader in the quick-service restaurant (QSR) industry, operating a diverse portfolio of renowned brands. These include Tim Hortons (TH), Burger King (BK), Popeyes Louisiana Kitchen (PLK), and Firehouse Subs (FHS). Founded in 1954 and headquartered in Toronto, Canada, QSR has established a significant presence in North America and internationally. The company’s strategic focus on franchising, brand diversification, and operational efficiency positions it well to capitalize on the growing demand for convenient and affordable dining options.

2. Financial Performance

Revenue and Growth

Trailing Twelve Months (TTM) Revenue: $7.48 Billion
Revenue Growth (YoY): +10.27%

QSR has demonstrated consistent revenue growth, with a TTM revenue of $7.48 billion, marking a 10.27% increase year-over-year. This growth is indicative of the company’s effective expansion strategies, strong brand performance, and resilience in the competitive QSR market. Despite a slight deceleration compared to previous years, the steady increase underscores QSR’s ability to maintain momentum through strategic initiatives and market penetration.

Profitability

Net Income (TTM): $1.27 Billion
Profit Margin: 16.99%
Operating Income (TTM): $2.23 Billion
Operating Margin: 29.84%
EBITDA (TTM): $2.44 Billion
EBITDA Margin: 32.57%

QSR showcases robust profitability metrics. The company reported a net income of $1.27 billion for the TTM period, translating to a healthy profit margin of 16.99%. Operating income and EBITDA figures further highlight QSR’s operational efficiency, with margins of 29.84% and 32.57%, respectively. These strong margins reflect effective cost management, high brand value, and successful operational strategies within the competitive QSR landscape.

Earnings Per Share (EPS)

EPS (TTM): $4.00
EPS Growth (YoY): +22.13%

QSR maintains a solid EPS of $4.00, with a year-over-year growth of 22.13%. This growth underscores the company’s increasing profitability and effective management strategies. The consistent rise in EPS highlights QSR’s ability to enhance shareholder value through earnings growth and efficient capital allocation.

3. Valuation Metrics

Trailing P/E Ratio: 17.30
Forward P/E Ratio: 19.10
Price-to-Sales (PS) Ratio: 2.91
Price-to-Book (PB) Ratio: 7.15
Price/Earnings to Growth (PEG) Ratio: 1.93
Enterprise Value to EBITDA (EV/EBITDA): 16.14
Enterprise Value to Free Cash Flow (EV/FCF): 33.39

QSR’s valuation metrics present a balanced perspective:

P/E Ratios: The trailing P/E of 17.30 and forward P/E of 19.10 are relatively moderate, suggesting that the stock is fairly valued based on current and projected earnings. These ratios indicate investor confidence in QSR’s sustained profitability and growth prospects.

PS and PB Ratios: With a PS ratio of 2.91 and a PB ratio of 7.15, QSR is trading at a reasonable premium relative to its sales and book value. These elevated ratios reflect strong market confidence but also imply that the stock may be somewhat overvalued compared to its fundamental metrics.
PEG Ratio: At 1.93, the PEG ratio suggests that the stock is slightly overvalued when considering its growth prospects. A PEG above 1 typically indicates overvaluation, though QSR’s consistent growth may justify this premium to some extent.
EV Ratios: The EV/EBITDA and EV/FCF ratios of 16.14 and 33.39, respectively, are indicative of a premium valuation relative to earnings and free cash flow. These ratios should be considered in the context of the company’s growth trajectory and market position.

Overall, while QSR exhibits strong profitability and growth potential, its valuation metrics suggest that the stock is priced at a reasonable premium, warranting careful consideration by investors.

4. Financial Position

Liquidity Ratios

Current Ratio: 0.78
Quick Ratio: 0.64

QSR’s liquidity ratios are below the industry average, with a current ratio of 0.78 and a quick ratio of 0.64. These figures suggest potential challenges in meeting short-term liabilities with current assets, indicating a relatively tight liquidity position. Investors should monitor the company’s ability to manage working capital effectively to avoid liquidity constraints.

Leverage Ratios

Debt-to-Equity Ratio: 3.22
Debt-to-EBITDA Ratio: 6.56
Debt-to-Free Cash Flow Ratio: 13.56

QSR maintains a substantial debt load, with a debt-to-equity ratio of 3.22, debt-to-EBITDA ratio of 6.56, and debt-to-free cash flow ratio of 13.56. These leverage ratios indicate significant financial obligations relative to the company’s earnings and cash flow, posing potential risks if earnings decline or cash flow generation weakens. High leverage may limit financial flexibility and increase vulnerability to economic downturns or rising interest rates.

Cash Position

Cash & Cash Equivalents: $945.00 Million
Total Debt: $15.97 Billion
Net Cash Position: -$15.02 Billion

QSR has a net cash position of -$15.02 billion, highlighting a significant level of debt relative to its cash reserves. While the company’s substantial cash holdings of $945.00 million provide a buffer, the negative net cash position underscores the importance of effective debt management and the potential impact of interest rate fluctuations on financial stability.

5. Cash Flow Analysis

Operating Cash Flow (TTM): $1.32 Billion
Capital Expenditures (TTM): -$141.00 Million
Free Cash Flow (TTM): $1.18 Billion
Free Cash Flow Growth: -0.93% YoY
Free Cash Flow Margin: 15.74%
Free Cash Flow Per Share: $2.59

QSR generates solid operating cash flow of $1.32 billion, contributing to a substantial free cash flow of $1.18 billion. Despite a slight decline in free cash flow growth by 0.93% year-over-year, the company maintains a healthy free cash flow margin of 15.74%, indicating efficient conversion of revenue into cash. Positive free cash flow supports ongoing capital investments, debt servicing, and shareholder returns through dividends and buybacks.

6. Share Statistics and Ownership

Shares Outstanding: 323.66 Million
Shares Change (YoY): -0.33%
Insider Ownership: 1.42%
Institutional Ownership: 81.00%
Float: 295.75 Million

QSR has slightly reduced its shares outstanding by 0.33% year-over-year, which can enhance earnings per share and potentially support the stock price. High institutional ownership at 81.00% indicates strong confidence from large investors, while insider ownership remains relatively low at 1.42%, suggesting limited direct control by company executives. The float of 295.75 million shares provides adequate liquidity and broad market participation.

7. Stock Performance and Market Sentiment

52-Week Price Range: $61.77 – $83.29
Current Stock Price: $69.18
52-Week Price Change: +2.35%
Beta: 0.95
Relative Strength Index (RSI): 48.94
Average Volume (20 Days): 1,498,086
Short Interest: 2.35% of shares outstanding

QSR’s stock has experienced a modest increase of 2.35% over the past 52 weeks, currently trading below the midpoint of its historical range. A beta of 0.95 indicates that the stock has volatility similar to the broader market, suggesting it is less susceptible to market swings compared to higher-beta stocks. The RSI of 48.94 places the stock in a neutral zone, indicating balanced buying and selling pressure.

8. Key Strengths and Opportunities

Strong Revenue Growth: Consistent year-over-year revenue growth of 10.27% demonstrates QSR’s ability to expand its market presence and capitalize on increasing demand for quick-service dining options.
Robust Profitability: High profit margins and substantial net income highlight effective cost management and strong revenue generation capabilities.
Positive Free Cash Flow: Significant free cash flow supports ongoing investments, debt reduction, and shareholder returns through dividends and buybacks.
High Dividend Yield: A dividend yield of 3.35% is attractive for income-focused investors, providing steady returns alongside capital appreciation.
High Institutional Ownership: Strong backing from institutional investors enhances market confidence and provides stability.
Global Brand Portfolio: Diverse brand portfolio including Tim Hortons, Burger King, Popeyes, and Firehouse Subs offers diversified revenue streams and reduces dependency on a single brand.
Strategic Initiatives: Investments in technology, menu innovation, and international expansions can drive future growth and operational efficiencies.

9. Risks and Challenges

High Leverage: A debt-to-equity ratio of 3.22 and a net cash position of -$15.02 billion indicate significant financial obligations. High leverage can limit financial flexibility and increase vulnerability to economic downturns or rising interest rates.
Liquidity Concerns: Current and quick ratios below 1 suggest potential challenges in meeting short-term liabilities, necessitating effective working capital management to avoid liquidity constraints.
Economic Sensitivity: As a player in the QSR industry, QSR is sensitive to economic cycles, consumer spending trends, and discretionary income levels, which can impact sales and profitability.
Operational Risks: Factors such as supply chain disruptions, labor shortages, rising operational costs, and compliance with evolving health and safety regulations can affect profitability and operational efficiency.
Competitive Landscape: Intense competition from other global and regional QSR chains, as well as emerging market players, may pressure QSR’s market share and pricing strategies.
Altman Z-Score: With an Altman Z-Score of 1.35, QSR is below the threshold of 3, suggesting an increased risk of bankruptcy in the near term. This underscores the importance of vigilant financial management and debt reduction strategies.
Dividend Sustainability: A payout ratio of 58.03% indicates that a significant portion of earnings is being distributed as dividends. While currently sustainable, any decline in earnings could impact dividend payments.

10. Conclusion and Investment Outlook

Restaurant Brands International Inc. (QSR) presents a compelling investment opportunity characterized by solid revenue growth, robust profitability, and attractive dividend yields. The company’s strategic positioning within the global quick-service restaurant industry, coupled with its diverse brand portfolio, supports its growth trajectory and resilience in a competitive market.

However, investors should be mindful of QSR’s high leverage and liquidity concerns, which introduce financial risks and may limit potential upside. The low Altman Z-Score further emphasizes the need for effective debt management to mitigate bankruptcy risks. Despite these challenges, QSR’s strong operational performance, positive free cash flow, and high dividend yield make it an attractive option for income-focused investors seeking exposure to the QSR sector.

NIKE, Inc. (NKE) Stock Analysis

Market Capitalization: $123.43 Billion
Shares Outstanding: 1.49 Billion
Sector: Consumer Discretionary
Industry: Footwear & Accessories
Analysis as of: October 21, 2024

1. Company Overview

NIKE, Inc. (NYSE: NKE) is a global leader in the design, development, marketing, and sales of athletic footwear, apparel, equipment, and accessories. Founded in 1964 and headquartered in Beaverton, Oregon, NIKE has established itself as one of the most recognized and valuable brands worldwide.

Key Brands and Products:

NIKE Brand: Athletic and casual footwear, apparel, and accessories.
Jordan Brand: Products inspired by basketball legend Michael Jordan.
Converse: Footwear and apparel under the Converse, Chuck Taylor, All Star, One Star, and other trademarks.
Equipment and Accessories: Sport balls, bags, socks, eyewear, digital devices, protective equipment, and more.

Distribution Channels:

Wholesale Customers: Footwear stores, sporting goods stores, department stores, and specialty retailers.
Direct-to-Consumer (DTC): NIKE-owned retail stores and digital platforms.
Digital Platforms: Fitness and activity apps, online content, and services.

Strategic Highlights:

Digital Transformation: Emphasis on growing digital sales through NIKE Direct and SNKRS apps.
Innovation: Continuous investment in product innovation, sustainability, and technology.
Global Expansion: Focus on emerging markets and strengthening presence in key regions like China and Europe.

2. Financial Performance

a. Revenue and Growth

Trailing Twelve Months (TTM) Revenue (as of August 31, 2024): $50.01 Billion
Year-over-Year (YoY) Revenue Growth (TTM): -2.83%

Revenue Trend (in Millions USD):

Fiscal Year Ending	Revenue	YoY Growth
May 31, 2020	$37,403	-4.38%
May 31, 2021	$44,538	+19.08%
May 31, 2022	$46,710	+4.88%
May 31, 2023	$51,217	+9.65%
May 31, 2024	$51,362	+0.28%
TTM 2024	$50,012	-2.83%

Analysis:

Revenue Decline: A slight decline in TTM revenue suggests challenges in maintaining growth momentum.
Pandemic Recovery: After strong recovery post-2020, growth has slowed, possibly due to market saturation and economic factors.
DTC Growth: Continued focus on direct-to-consumer sales may help offset declines in wholesale channels.

b. Profitability

Net Income (TTM): $5.30 Billion
Earnings Per Share (EPS, TTM): $3.49
Profit Margin: 10.60%
Return on Equity (ROE): 37.98%
Return on Assets (ROA): 10.65%

Analysis:

Stable Profitability: Net income increased by 4.93% YoY, indicating stable profitability despite revenue decline.
Strong ROE: High ROE reflects effective use of shareholder equity to generate profits.
EPS Growth: EPS increased by 7.91%, demonstrating improved earnings per share due to share repurchases and earnings growth.

c. Gross Margin and Operating Margin

Gross Margin (TTM): 44.97%
Operating Margin (TTM): 12.71%
EBITDA Margin (TTM): 14.40%

Analysis:

Healthy Margins: Gross margin remains strong, indicating effective cost management and pricing strategies.
Operating Efficiency: Operating margin improved compared to prior fiscal years, suggesting better control over operating expenses.

d. Cash Flow

Operating Cash Flow (TTM): $7.89 Billion
Capital Expenditures (CapEx, TTM): – $679 Million
Free Cash Flow (FCF, TTM): $7.21 Billion
Free Cash Flow Margin: 14.42%
Free Cash Flow Per Share: $4.84

Analysis:

Strong Cash Generation: High free cash flow provides flexibility for dividends, share buybacks, and investments.
CapEx Management: Relatively low capital expenditures indicate efficient capital allocation.
Cash Flow Growth: Operating cash flow grew by 45.61% YoY, highlighting improved cash management.

3. Balance Sheet

Total Assets (as of August 31, 2024): $37.87 Billion
Total Liabilities: $23.92 Billion
Shareholders’ Equity: $13.94 Billion
Total Debt: $12.13 Billion
Cash & Equivalents: $10.29 Billion
Net Cash Position: – $1.83 Billion
Net Cash Per Share: – $1.23
Debt-to-Equity Ratio: 0.87
Current Ratio: 2.36
Quick Ratio: 1.42
Working Capital: $14.41 Billion

Analysis:

Liquidity: Strong current and quick ratios indicate the company can comfortably meet short-term obligations.
Leverage: A debt-to-equity ratio of 0.87 shows moderate leverage; manageable given strong cash flows.
Net Cash Position: Slight net debt position due to debt exceeding cash; however, this is not alarming given the company’s financial strength.
Inventory Levels: Inventory turnover ratio of 3.25 suggests efficient inventory management.

4. Valuation

Current Stock Price (as of October 18, 2024): $82.92
Price-to-Earnings (PE) Ratio (TTM): 23.74
Forward PE Ratio: 28.97
Price-to-Book (PB) Ratio: 8.87
Price-to-Sales (PS) Ratio: 2.50
Price-to-Free Cash Flow (P/FCF) Ratio: 17.12
Enterprise Value (EV): $125.26 Billion
EV/EBITDA Ratio: 17.39
EV/EBIT Ratio: 19.70
PEG Ratio: 3.88

Analysis:

Moderate Valuation Multiples: PE and PB ratios are relatively high compared to industry averages, indicating the stock may be trading at a premium.
Growth Expectations: A PEG ratio of 3.88 suggests the stock may be overvalued relative to its earnings growth rate.
Analyst Consensus: Average price target is $98.03, implying potential upside of 18.22%.

5. Market Performance

52-Week Range: $70.75 – $123.39
52-Week Price Change: -19.50%
Beta: 1.02

Analysis:

Stock Decline: The stock has declined over the past year, underperforming the broader market.
Market Volatility: A beta of 1.02 indicates the stock’s price movement is in line with the market.
Investor Sentiment: Negative price performance may reflect concerns over slowing growth and competitive pressures.

6. Financial Health and Risks

a. Liquidity

Current Ratio: 2.36
Quick Ratio: 1.42

Analysis:

Strong Liquidity: High ratios indicate ample liquidity to cover short-term liabilities.

b. Leverage

Total Debt: $12.13 Billion
Debt-to-Equity Ratio: 0.87
Interest Coverage Ratio: 22.63

Analysis:

Manageable Debt: Moderate leverage with strong interest coverage suggests low financial risk.
Debt Management: Consistent debt levels with effective repayment strategies.

c. Profitability and Cash Flow

Consistent Profitability: Stable profit margins and returns on equity and assets.
Strong Cash Flow: High free cash flow supports dividends, share repurchases, and investments.

d. Operational Risks

Competition: Intense competition from brands like Adidas, Under Armour, and emerging market entrants.
Supply Chain Disruptions: Potential risks from global supply chain challenges and geopolitical tensions.
Consumer Preferences: Changing fashion trends and consumer preferences may impact demand.

e. Market Risks

Economic Conditions: Economic downturns can reduce consumer spending on discretionary items like athletic apparel.
Currency Fluctuations: As a global company, currency exchange rates can impact financial results.
Regulatory Changes: Tariffs and trade policies may affect costs and pricing strategies.

7. Conclusion Pros:

Global Brand Recognition: Strong brand equity and customer loyalty.
Innovation Leadership: Continuous investment in product innovation and technology.
Digital Growth: Expansion of direct-to-consumer channels and digital platforms.
Financial Stability: Strong cash flows and liquidity position.

Cons:

Slowing Growth: Recent revenue decline and slowing growth rates.
High Valuation Multiples: Elevated PE and PEG ratios may limit upside potential.
Competitive Pressures: Intense competition may impact market share and margins.
Market Saturation: Mature markets may limit growth opportunities.

Disclaimer:

Who is Bill Ackman ?

May 11, 1966:

· William Albert Ackman was born in Chappaqua, New York.

1988:

· Ackman graduates from Harvard University with a degree in economics.

1989:

· Ackman joins Goldman Sachs as an investment banker.

1992:

· Ackman leaves Goldman Sachs to start his own hedge fund, Gotham Partners, with $3 million in capital.

2002:

· Gotham Partners loses 40% of its value due to a bad bet on the telecom industry.

2003:

· Ackman launches Pershing Square Capital Management, a hedge fund management company based in New York City.

2007:

· Ackman becomes widely known for his high-profile battle with the management of Target Corporation. He acquires a stake in the company and pushes for changes to maximize shareholder value.

2008:

· During the financial crisis, Ackman bets against the bond insurers MBIA and Ambac, predicting their downfall. This bet ultimately proves successful, earning Ackman’s fund billions of dollars in profits.

2011:

· Ackman takes a significant stake in J.C. Penney and becomes its largest shareholder. He attempts to implement major changes in the company’s strategy and leadership, but his efforts fail, resulting in substantial losses for his fund.

2014:

· Ackman becomes involved in a highly publicized short-selling campaign against Herbalife, a multi-level marketing company. He accuses Herbalife of being a pyramid scheme and places a billion-dollar bet against the company’s stock.

2017:

· Ackman exits his short position on Herbalife, admitting that the campaign was not as successful as he initially anticipated. The bet resulted in significant losses for his fund.

2020:

· Ackman gains attention for his early warning about the severity of the COVID-19 pandemic. In a series of interviews, he expresses his concerns about the virus and calls for a nationwide shutdown.

2020:

· Pershing Square Capital Management launches a special purpose acquisition company (SPAC) called Pershing Square Tontine Holdings (PSTH). The SPAC raises $4 billion, making it the largest-ever IPO of a SPAC at the time.

2021:

· PSTH fails to complete a merger deal within its two-year deadline, resulting in the dissolution of the SPAC. Ackman announces plans to launch a new SPAC in the future.

2022:

· Ackman advocates for Universal Music Group (UMG), a division of Vivendi, to go public. Pershing Square Tontine Holdings II (PSTH II), Ackman’s new SPAC, agrees to merge with UMG, valuing the music label at around $40 billion.

2023:

· The merger between PSTH II and Universal Music Group is completed, and UMG starts trading on the Amsterdam Euronext stock exchange.

Interesting facts

Ackman is known for his activist investing approach, often taking significant stakes in companies and pushing for changes to increase shareholder value.

He has been involved in several high-profile battles with company management and has made large bets on both long and short positions.

Ackman is a prominent philanthropist. In 2016, he signed the Giving Pledge, committing to donate the majority of his wealth to charitable causes.

He is a well-known advocate for education reform and has supported various organizations focused on improving public schools.

Ackman has a background in real estate and initially worked at his father’s company before venturing into the world of finance.

Bill Ackman's Investing Principles

I’m not emotional about investments. Investing is something where you have to be purely rational and not let emotion affect your decision making – just the facts.

Bill Ackman

Investing is a business where you can look very silly for a long period of time before you are proven right.

Bill Ackman

Short-term market and economic prognostication is largely a fool’s errand, we invest according to a strategy that makes the need to rely on short-term market or economic assessments largely irrelevant.

Bill Ackman

I think most investors overdiversify because they’re lazy. They haven’t done enough research into any of their companies. If they’ve got 200 positions, do you think they know what’s going on at any one of those companies at this moment?

Bill Ackman

What the market tells you in the short term is what a certain subset of people believe. That doesn’t mean they’re right.

Bill Ackman

We invest generally in very good companies that have lost their way. And with better management, enormous value can be created.

Bill Ackman

In the investing business you need a high degree of confidence but you also need a high degree of humbleness and you have to balance those two… Humbleness comes from mistakes.

Bill Ackman

If you can’t predict the cash flows, you don’t know what it’s worth. If you don’t know what it’s worth, you can’t invest.

Bill Ackman

If you’re investing for the long-term, you want to invest in businesses that have very little debt.

Bill Ackman

We expect to continue to concentrate the substantial majority of our capital in about 8 to 12 investments, and estimate that our typical holding period will be long-term, typically four or more years.

Bill Ackman

It’s safest to invest in businesses that aren’t controlled. Unless the controlling shareholder is someone that we trust, unless it’s someone that has a great track record for taking care of all the minority investors, it can be a risky proposition to invest in because you’re at the whim of the controlling shareholder.

Bill Ackman