market folly

At the Grant's Interest Rate Observer Conference, Bill Ackman of Pershing Square unveiled a new long position: Starbucks (SBUX).  The presentation is entitled 'Doppio' and Pershing now owns over 15 million shares with a cost basis of $51 and they've used forward contracts.  It's around a $900 million stake.

Pershing notes SBUX is trading at 22x, a discount to the average of 26x and they feel premium coffee is a secularly growth category.  If same store sales and valuation can return to average levels, SBUX shares can double in three years.

Pershing's thesis is that this is a rare opportunity to own one of the world's best franchises at a discount.  They're encouraged by actions of the new leadership team, as they've streamlined the portfolio (sold Tazo, closed Teavana stores, sold the consumer packaged goods business to Nestle).  They're also initiating cost savings and a significant share buyback plan (~$19bn three year target).

Pershing Square: Long Starbucks Presentation

Embedded below is the .pdf of the presentation:



You can download a copy here.

For other recent hedge fund commentary, we also posted up David Einhorn & Greenlight Capital's Q3 letter.