October 22, 2018

Opportunity Equity Update for Week Ended 10/19/18

United Rises on Earnings While Pulte Falls on Lower Sept. Housing Starts

Last week, the Opportunity Equity strategy gained 0.10%, outperforming the S&P 500’s 0.05% rise (Exhibit 1). The strategy ended the week up 12.85% YTD, or 774 basis points ahead of the S&P 500.

Exhibit 1: Preliminary Performance of Opportunity Equity Strategy Versus S&P 500, Through 10/19/181

Time Period Opportunity Equity S&P 500
Last Week (10/12 – 10/19) 0.10% 0.05%
MTD -8.42% -4.93%
QTD -8.42% -4.93%
YTD 12.85% 5.11%
Inception (annualized since 6/26/00) 7.55% 5.62%

Source: Bloomberg, Miller Value Partners

United Continental Holdings (UAL) rose above the 50-day moving average after announcing 3Q earnings and strong 4Q guidance. The company had 3Q adjusted EPS of $3.06, slightly below consensus of $3.09 but includes a $0.07 drag from tropical storms. The company was able to recover 100% of the fuel cost increase over the quarter and for the year, they should be able to recover 90%. The company guided 4Q unit revenue growth of 3-5% with average seat miles increasing 5-6% and adjusted pre-tax margins of 5-7%. The company increased its 2018 EPS guidance to $8.00-$8.75 from $7.25-$8.75. CenturyLink Inc. (CTL) crossed above the 50-day moving average. Avon Products Inc. (AVP) appointed Colin Shenoy, previously CIO and Global Operations Director for BUPA Global, new VP for IT Transformation. Delta Air Lines Inc. (DAL) traded up in sympathy with UAL and continued their rise after their strong earnings report and 4Q guidance the week prior. There was minimal news on Discovery Inc. (DISCA).

Exhibit 2: Significant Contributors to Performance, 10/12/18 – 10/19/18

Name Type Return
United Continental Holdings Equity 9.0%
CenturyLink Inc. Equity 6.4%
Discovery Inc. Equity 5.2%
Avon Products Inc. Equity 6.4%
Delta Air Lines Inc. Equity 2.6%

Source: Miller Value Partners

Intrexon Corp. (XON) subsidiary Oxitec announced an expanded collaboration with Bill & Melinda Gates Foundation to develop a self-limiting Anopheles stephensi strain to help combat malaria in India, Middle East and the Horn of Africa. Pulte Group Inc. (PHM) and Lennar Corp. (LEN) declined over the week along with the rest of the housing sector following September total housing starts falling 5.3% sequentially to 1,201k below the street’s outlook led by multi-family starts down 15.2% to 330k and single-family starts declining only 0.9% to 871k. Total permits fell 0.6% sequentially to 1,241k. This was followed by September existing home sales declining 3.4% sequentially to 5.15m below street expectations for 5.34m. Pandora Media Inc. (P) crossed below the 50-day moving average. Brighthouse Financial Inc. (BHF) crossed below the 50 and 100-day moving average.

Exhibit 3: Significant Detractors from Performance, 10/12/18 – 10/19/18

Name Type Return
Intrexon Corp. Equity -7.7%
Pulte Group Inc. Equity -5.7%
Pandora Media Inc. Equity -5.1%
Lennar Corp. Equity -5.3%
Brighthouse Financial Inc. Equity -2.4%

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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