The Intellectual Investor: Opportunity Equity Weekly Updates

October 15, 2018

Opportunity Equity Update for Week Ended 10/12/18

RH Rises on New Buyback Program While ADT falls on Amazon’s New Partnership with Travelers

Last week, the Opportunity Equity strategy lost -4.36%, underperforming the S&P 500’s -4.07% loss (Exhibit 1). The strategy ended the week up 12.74% YTD, or 767 basis points ahead of the S&P 500.

Exhibit 1: Preliminary Performance of Opportunity Equity Strategy Versus S&P 500, Through 10/12/181

Time Period Opportunity Equity S&P 500
Last Week (10/5 – 10/12) -4.36% -4.07%
MTD -8.52% -4.97%
QTD -8.52% -4.97%
YTD 12.74% 5.07%
Inception (annualized since 6/26/00) 7.55% 5.62%

Source: Bloomberg, Miller Value Partners

RH (RH) gained over the week after the company announced a new $700M share buyback program (~20% of shares outstanding). The company stated that it would use existing cash, free cash flow, borrowing under existing credit facilities and proceeds from incremental borrowing arrangements to fund potential purchases. Mallinckrodt plc (MNK) crossed above the 50-day moving average despite Praxair receiving FDA approval for its device for use with its generic form of Inomax leading to Wells Fargo’s analyst cutting the price target to $24, from $30. D.E. Shaw reported a 5% passive stake in MNK at the end of the week. Endo International Inc. (ENDP) gained over the week after receiving approval for dofetilide capsules, a generic of Pfizer’s Tikosyn. Mizhuo raised its price target to $18 up from $17. Pandora Media Inc. (P) gained over the week after B Riley increased their price target to $11.50 for Pandora based on the 1.44x exchange ratio with SiriusXM and their belief that SiriusXM should end the year at ~$8. There was minimal news on Endurance International Group Holdings (EIGI).

Exhibit 2: Significant Contributors to Performance, 10/5/18 – 10/12/18

Name Type Return
RH Equity 9.0%
Mallinckrodt plc Equity 5.0%
Endo International Equity 0.8%
Pandora Media Inc. Equity 1.0%
Endurance International Group Holdings Equity 1.1%

Source: Miller Value Partners

ADT Inc. (ADT) fell below the 100 day moving average after Travelers Cos. announced a new partnership with Amazon where Amazon will offer discounted smart home kits to Travelers’ customers and those customers will receive a discount on their homeowner’s policies with the purchase of a kit. American Airlines Group Inc. (AAL) declined after providing updated 3Q guidance. American increased its 3Q18 unit revenue (RASM) guidance from 1-3% to 2-3% YoY citing strong domestic yields but increased their jet fuel forecast to $2.28-$2.33/gallon up from $2.22-$2.27 previously. The company reiterated 3Q18 unit costs excluding fuel and special items guidance of 1%. Inc. (AMZN) fell below the 100-day moving average. Bausch Health Companies Inc. (BHC) received tentative approval for Bryhali lotion for the treatment of plaque psoriasis in adults. The final FDA approval is pending the expiration of exclusivity for a related product which is expected in early November 2018. The company also announced that its Altreno lotion provides significantly greater efficacy over vehicle in two clinical trials. Quotient Technology Inc. (QUOT) crossed below the 200-day moving average.

Exhibit 3: Significant Detractors from Performance, 10/5/18 – 10/12/18

Name Type Return
ADT Inc. Equity -13.5%
American Airlines Group Inc. Equity -15.2% Inc. Equity -4.9%
Bausch Health Companies Inc. Equity -6.3%
Quotient Technology Inc. Equity -9.5%

Source: Miller Value Partners

1The performance figures reflect the results of a representative account net of management fee and certain other expenses. For important additional information about Opportunity Equity performance, please click on the Opportunity Equity Composite Performance Disclosure. The performance returns shown in this report are preliminary and are subject to revision. Past performance is no guarantee of future results.

Significant Contributors and Significant Detractors are the Strategy holdings that had the greatest effect on Strategy performance for the week. Holdings that have been in the Strategy since the end of the most recent calendar quarter are identified by name. For information on how Contributor/Detractor data were calculated and a list showing the contribution to the Strategy’s weekly performance of each investment held at such quarter end, contact us.

Any views expressed are subject to change at any time, and Miller Value Partners disclaims any responsibility to update such views. The information presented should not be considered a recommendation to purchase or sell any security and should not be relied upon as investment advice. It should not be assumed that any purchase or sale decisions will be profitable or will equal the performance of any security mentioned. Past performance is no guarantee of future results, and there is no guarantee dividends will be paid or continued. Content may not be reprinted, republished or used in any manner without written consent from Miller Value Partners.

©2018 Miller Value Partners, LLC

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