Activist investor Bill Ackman, head of $10 billion Pershing Square Capital Management, is making a bet that the housing market will recover sooner than many think, and positioning his portfolio for when it does.
In the final presentation at the 7th annual Value Investing Congress Tuesday in New York, Pershing senior analyst and partner Ali Namvar presented the bull case for Fortune Brands Home & Security, the recently spun off kitchen and security business of Fortune Brands.
“FBHS is very cheap with immense upside potential,” said Namvar. “The downside is limited because of the very clean balance sheet, allowing the company the option to make some very accretive additions.”
The stock spiked 5 percent immediately on the news.
Namvar said the current valuation assumes almost no housing recovery in the next five years. Pershing believes the company is worth in the range of $18 to $27 a share and could double or triple its operating earnings if housing starts return to more normalized levels.
While Namvar acknowledged the pace and strength of the housing market is hard to predict, he called FBHS “one of the best operators in the business with improving marketplace position and no liquidity concerns.” The company is being very aggressive, including rolling out their new Martha Stewart Living line and “spending money while their competitors are being defensive,” he said.
FBHS is operating with excess capacity, but has the option to downsize if housing doesn't recover. That's why it's unlikely Pershing will be agitating for change anytime soon. The fund filed a 13G with the SEC afterhours, disclosing a 15 percent passive stake in the company, which could infer a vote of confidence in management.
“Investing in FBHS is a great low-risk way to profit from an eventual housing recovery.”
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