Stellantis Gains on Strong Earnings Report, While Encore Wire Falls Despite Earnings Beat

Last week, the Income Strategy’s representative account rose 1.85% (net of fees), outperforming the ICE BofA Merrill Lynch High Yield Master II Index’s -0.38% loss and outperforming the S&P 500’s -0.35% loss. (Exhibit 1). The strategy ended the week up 0.70% YTD, or 89 basis points ahead of the high yield index and 445 basis points behind the S&P 500.

Exhibit 1: Performance of Income Strategy Representative Account Net of Fees Versus High Yield, Equity Indices, Through 2/16/20241

Time Period Income Strategy Representative Account ICE BofA Master High Yield II Index S&P 500 Index
Last Week (2/9 – 2/16) 1.85% -0.38% -0.35
MTD 2.87% -0.21% 3.41%
QTD 0.70% -0.19% 5.15%
YTD 0.70% -0.19% 5.15%
1 Year 7.40% 10.50% 24.37%
5 Year 4.44% 4.07% 14.44%
Inception (annualized since 2/28/2014) 3.81% 4.24% 12.53%
Source: Bloomberg, Miller Value Partners.

Four equities and one bond comprised last week’s top 5 contributors. Stellantis NV (STLA) reported FY23 revenue of €189.5B ($204.3B), +5.5% Y/Y, ahead of consensus of €189.3B, and Adjusted EPS of €6.42 ($6.92), +7.2% Y/Y, ahead of consensus of €5.88. The company returned €6.6B ($7.1B) to shareholders through dividends and buybacks in FY23, or ~8.8% of the company’s market cap, and STLA’s board of directors proposed an annual dividend of €1.55/share ($1.67), in addition to a new buyback program of €3.0B ($3.2B), representing a ~10.5% shareholders yield. For FY24, management reiterated a minimum commitment of double-digit adjusted operating income margins and expects positive industrial free cash flow after posting industrial FCF of €12.9B ($13.9B) in 2023 (17.0% yield). MicroStrategy Inc 0.75% 12/15/2025 rose in sympathy with Bitcoin’s 9.4% price surge last week, which pushed the cryptocurrency above $52K for the first time since December 2021. Quad Graphics (QUAD) reinstated its quarterly dividend with the declaration of a $0.05/share dividend, implying an annualized yield of ~3.1%. There was no price-changing news for Viatris Inc (VTRS) or OneMain Holdings (OMF) last week.

Exhibit 2: Significant Contributors to Income Strategy Representative Account Performance, 02/09/24 – 02/16/24

Name Type
Viatris Inc. Equity
Stellantis NV Equity
OneMain Holdings Inc. Equity
MicroStrategy Inc 0.75% 12/15/2025 Bond
Quad Graphics Equity
Source: Miller Value Partners.

Four equities and one bond comprised last week’s top 5 detractors. Encore Wire (WIRE) reported 4Q23 net sales of $633.8MM, -8.7% Y/Y, ahead of consensus of $601.7MM, and EPS of $4.10, compared to 4Q22 EPS of $8.28, ahead of consensus of $4.02. During the quarter, the company repurchased 476.3K shares for $85.1MM, bringing FY23 share repurchases to $460.2MM (12.9% of market cap), and total repurchases since 1Q20 to $771.7MM, or 21.5% of the company’s market cap. Management guided for FY24 capex of $140MM, FY25 capex of $140MM, and FY26 capex of $110MM, at the respective midpoints, and expects these investments to be funded internally with its cash balance and operating cash flow generation. iHeartCommunications Inc 8.375% 5/1/27 fell last week as the company announced the closing of its previously announced divestiture of Broadcast Music Inc (BMI), resulting in net proceeds of $101.4MM, which management intends to use for general corporate purposes, which may include the repayment of debt. There was no price-changing news for Vonovia SE (VNA GY), CTO Realty Growth (CTO), or Western Alliance Bancorp (WAL) last week.

Name Type
Encore Wire Corp. Equity
iHeartCommunications Inc 8.375% 5/1/27 Bond
Vonovia SE Equity
CTO Realty Growth Inc. Equity
Western Alliance Bancorp Equity
Source: Miller Value Partners.