The Strategist

Ackman bets on Starbucks

10/11/2018 - 15:19

Head of Pershing Square Capital Management told about acquisition of a large stake in Starbucks coffee shops at a conference in New York.

In total, Ackman acquired 15.2 million securities worth about $ 900 million (at a price of $ 51 per share). According to the manager, value of Starbucks securities will more than double over the next three years.

Speaking at Grant’s Fall 2018 conference, held at the Plaza Hotel in New York, Ackman described the company as "one of the greatest businesses in the world." The financier also added that he regretted the lost opportunity to purchase Starbucks shares during the 2008 financial crisis, when they fluctuated at the level of $5.

According to Ackman, the company's growth is driven by China, where first-class coffee is becoming an increasingly desirable product. “For many Chinese, Starbucks has become a “third place.” They go there to relax and spend time with friends,” notes Ackman. The company representatives say that a new coffee shop opens in China every 15 hours. In addition, Ackman said that Starbucks has no competitors in the Eastern country, having lowered value of several local manufacturers, including Luckin. “The situation is similar to the one in which, along with McDonald’s, a new unknown burger chain is opening,” he says.

Starbucks looks attractive to Ackman also because coffee is becoming increasingly popular. “Coffee is a natural and healthy drink, unlike soda, but it’s just as easy to get hooked on. Such a business dominates its sector and becomes extremely profitable,” he says.

Another important factor is the growing popularity of coffee among the younger generation. “Young people drink a lot more coffee than previous generations. Starbucks benefits from this the most,” notes Ackman.

He does not see problems in slowing the growth of company stocks. According to him, this can be explained by change of the general director and reduction in sales in coffee houses that have existed for more than a year. Ackman now supports the policies set by Starbucks' new leadership, Kevin Johnson, calling his actions "encouraging."