Pershing Square earned a 51% return on ADP, with Pershing gaining $1.2 billion on its ADP investment. Ackman lost a proxy battle with ADP in 2017, as he had asked for three seats on the company’s ten-member board but didn’t obtain any seats. Ackman said while he lost the proxy fight, it prompted ADP’s management to make critical changes.
Pershing Square’s conviction in the stock came from its belief that ADP has a significant opportunity to accelerate its top-line revenue growth and grow its margins. In turn, this should allow it to compound earnings at a growth rate in the mid- to high teens for years to come.
As Reuters reported, Ackman wrote in the latest letter to clients, “If ADP meets its 2021 earnings targets, we estimate the stock will generate a low double-digit return from our exit price,” which is close to $167 per share.
The fund is exiting ADP primarily because Ackman believes the future potential gains are expected to be more modest as the market is “more accurately pricing in ADP’s prospects for success.”
View more information: https://marketrealist.com/2019/08/pershing-square-exits-united-tech-adp-investments/