19th Annual Pershing Square Value Investing and Philanthropy Challenge

Key Concepts

• Applied Security Analysis: A practical investment course focusing on fundamental research, valuation, and professional pitching.
• Investment Thesis: A structured argument for a long or short position based on growth, margin expansion, and valuation discrepancies.
• Reverse DCF (Discounted Cash Flow): A valuation method used to determine what growth or performance expectations are currently "priced in" to a stock.
• Operating Leverage: The ability of a company to increase profits faster than revenue as fixed costs are spread over a larger volume of sales.
• TAM (Total Addressable Market): The overall revenue opportunity available for a product or service.
• CAGR (Compound Annual Growth Rate): The mean annual growth rate of an investment over a specified period.
• IRR (Internal Rate of Return): A metric used to estimate the profitability of potential investments.
• Moat: A competitive advantage that protects a company's market share and profitability.

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1. Amadeus IT Group (Long Thesis)

• Core Business: A dominant global travel technology platform (GDS - Global Distribution System) acting as a "toll booth" for travel bookings.
• Key Arguments:
  • Neo Platform: The next-gen platform is expected to drive 10% segment growth, significantly higher than the consensus of 7%.
  • Margin Expansion: As the heavy investment cycle in cloud migration and R&D fades, EBITDA margins are expected to reach the low 40s.
  • AI Resilience: The team argues that AI/LLMs cannot replace mission-critical, high-uptime transactional infrastructure (99.99% uptime required).
• Financials: 3-year price target of €78 (68% upside, 22% IRR).
• Risk/Reward: 5:1 bull-bear skew; the market is currently pricing in a 50% churn rate, which the team deems extreme.

2. Baker Hughes (Long Thesis)

• Core Business: Transitioning from a cyclical oilfield services provider to an "Industrial Energy Technology" (IET) infrastructure platform.
• Key Arguments:
  • Business Transformation: Revenue mix is shifting from 60% oilfield services to over 60% IET by 2028.
  • Structural Demand: Driven by LNG buildouts, data center power requirements, and grid modernization.
  • Service Moat: 70% of equipment sales include long-term service agreements (LTSAs) with proprietary "hot parts," creating high-margin, recurring revenue.
• Financials: 3-year price target with 63% upside.
• Key Metric: $32 billion backlog provides multi-year revenue visibility.

3. Celsius Holdings (Long Thesis)

• Core Business: A high-growth energy drink company (Celsius and Alani Nu) targeting Gen Z and women.
• Key Arguments:
  • Distribution Moat: Partnership with PepsiCo provides critical shelf space and access to convenience stores (70% of sales).
  • Brand Loyalty: Proprietary survey data (550 respondents) shows high repeat purchase intent compared to newer, less established brands.
  • Operational Efficiency: Acquisition of a co-packer (Big Beverages) and scale-driven SG&A leverage are expected to drive 250 bps of operating margin expansion.
• Financials: 3-year price target of $65.70 (94% upside, 25% IRR).

4. DoorDash (Long Thesis)

• Core Business: A three-sided marketplace (consumers, merchants, dashers) for food and grocery delivery.
• Key Arguments:
  • Operating Leverage: The team argues the market is mismodeling the company's ability to scale profitability as the platform matures.
  • New Verticals: Grocery and international segments are expected to reach profitability earlier than consensus estimates.
  • Management: High conviction in CEO Tony Xu, noting that 96% of target compensation is equity-based.
• Financials: 3-year price target of $318 (80% upside, 22% IRR).

5. MSA Safety (Long Thesis)

• Core Business: Critical safety equipment (gas detection and fire service gear).
• Key Arguments:
  • Connected Worker: Transitioning from hardware-only sales to "MSA Plus" (hardware + software subscription), which generates 2.6x the revenue and 3x the gross profit per unit.
  • Replacement Cycle: A mandatory 10–15 year replacement cycle for SCBA (oxygen tanks) provides a predictable revenue floor.
  • Capital Allocation: Post-divestiture of legacy product liability claims, the company is aggressively increasing share buybacks and R&D.
• Financials: 5-year price target of $356 (110% upside, 18% IRR).

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Synthesis and Conclusion

The 19th annual Pershing Square Challenge highlighted a consistent investment philosophy: identifying companies undergoing structural transformations that the market has yet to fully appreciate. Across all five pitches, the students emphasized:

1. Primary Research: Extensive use of expert calls, proprietary surveys, and ground-up unit economic modeling to challenge sell-side consensus.
2. Moats and Recurring Revenue: A strong preference for businesses with high switching costs (Amadeus, Baker Hughes, MSA) or powerful distribution networks (Celsius, DoorDash).
3. Valuation Discipline: A focus on "what is priced in" (Reverse DCF) and identifying opportunities where the market is overreacting to temporary noise (AI fears, one-time investment cycles, or private label competition).

The presentations demonstrated that successful investing requires the courage to hold convictions under pressure while maintaining the intellectual honesty to update views when facts change.