Bill Ackman and Lowe’s
Bill Ackman’s Pershing Square declared its $1 billion stakes in Lowe’s (LOW) in the first quarter of 2018. At the end of the fourth quarter, Lowe’s was Pershing Square’s second-largest holding. Lowe’s formed 14.8% of Pershing Square’s portfolio. Pershing Square also increased its stake in the company by 13% during the quarter.
Lowe’s stock has risen 13.7% YTD (year-to-date) until February 26 and outperformed the broader markets (SPY) (QQQ). The S&P 500 (SPY) and the NASDAQ Composite (QQQ) have returned 11.8% and 12.6% during the same period, respectively. Home Depot (HD) stock has returned 9.6% YTD as of February 26. During the same period, Lowe’s other peers (XHB) including Williams-Sonoma (WSM) and Bed Bath & Beyond (BBBY) have returned 12.8% and 46.5%, respectively.
Pershing Square’s investment in the stock has risen 22% based on its average purchase price of $86.
Lowe’s latest results
On February 27, Lowe’s posted its fourth-quarter results. In the quarter ending on February 1, the company’s adjusted EPS of $0.80 beat analysts’ expectation of $0.79. However, the company’s revenues of $15.65 billion fell short of analysts’ expectation of $15.74 billion. While Lowe’s cited the weak housing market in Canada for some of its weaker performance, Marvin Ellison, Lowe’s new CEO, said that the US (IVV) fundamentals remain sound for 2019.
Ackman’s conviction in Lowe’s
In Pershing Square’s latest shareholder letter, the company stated that it expects the stock to take off. The company thinks that “secular housing trends support long-term growth and reduce cyclicality.” Lowe’s new management team contains several former Home Depot executives. Ellison has played a key role in the company’s turnaround. Pershing Square expects Ellison to narrow Lowe’s performance gap with Home Depot. The improvement in Lowe’s margins and sales productivity could unlock even more value for the company’s shareholders over time. While some of the conviction shown by Pershing Square in Lowe’s is coming true, it would take additional improvement to unlock the company’s full value—as perceived by Ackman.