JPMorgan downgrades Howard Hughes, doubting Ackman's plan for diversified holding co.

Investment bank JPMorgan has downgraded its recommendation on small-cap real estate developer Howard Hughes from «overweight» to «neutral,» as reported by CNBC. The company is set to get an infusion of $900 million from billionaire hedge fund manager Bill Ackman, who intends to turn it into a «modern-day Berkshire Hathaway.» JPMorgan analysts are skeptical that Ackman can deliver.

JPMorgan no longer recommends buying Howard Hughes, whose capitalization on the New York Stock Exchange is barely $4 billion. Now, it recommends investors hold the stock, according to a note put out yesterday, June 23.

JPMorgan has grown skeptical of the plan of Ackman, the founder of hedge fund Pershing Square, to buy nearly half of Howard Hughes and turn it into a holding company. 

«Pershing Square and Bill Ackman’s intention is to use the cash infusion into the company to make investments outside real estate (perhaps into insurance) and turn HHH into a diversified holding company... Notwithstanding the above, we are moving from an Overweight rating to Neutral on the shares,» CNBC quoted the JPMorgan note as stating.

Ackman's hedge fund Pershing Square is investing $900 million in Howard Hughes, purchasing 9 million newly issued shares at $100 each. This will give it a 46.9% ownership stake in the developer, the sides announced in May.

Ackman wants to transform Howard Hughes into a diversified holding company that acquires promising businesses as long-term investments – similar to how Warren Buffett’s Berkshire Hathaway operates. 

Buffett is known for “elephant hunting,” a reference to his search for large acquisition targets. Meanwhile, Ackman, while explaining his vision for Howard Hughes, says: “We’re going to start not with elephants, not rabbits, but small animals.» 

Howard Hughes slid 3.6% to $66.75 per share yesterday, when JPMorgan issued its downgrade. Year to date, the stock is down more than 13%.

The real estate developer has three «buy» ratings from Wall Street analysts and one «hold» rating, according to MarketWatch. The average target price is $80.33 per share, meaning upside of just over 20% versus the closing price yesterday. 

The AI translation of this story was reviewed by a human editor.