October 29, 2018

Opportunity Equity Update for Week Ended 10/26/18

Endurance Gained on Earnings While Endo Fell Below 50-day Moving Average

Last week, the Opportunity Equity strategy lost 6.16%, underperforming the S&P 500’s -3.93% decline (Exhibit 1). The strategy ended the week up 5.90% YTD, or 492 basis points ahead of the S&P 500.

Exhibit 1: Preliminary Performance of Opportunity Equity Strategy Versus S&P 500, Through 10/26/181

Time Period Opportunity Equity S&P 500
Last Week (10/19 – 10/26) -6.16% -3.93%
MTD -14.06% -8.67%
QTD -14.06% -8.67%
YTD 5.90% 0.98%
Inception (annualized since 6/26/00) 7.17% 5.38%

Source: Bloomberg, Miller Value Partners

Endurance International Group Holdings (EIGI) rose above the 50, 100 and 200-day moving average after reporting better than expected 3Q results. Revenue came in slightly below expectations ($283.8M vs. $285.0M) but EBITDA beat with $87.5M versus $78M leading to EPS of -$0.04.  The company lowered full year revenue guidance to $1.14-1.50B from $1.14-1.16B but increased adjusted EBITDA guidance to $330-335M from $310-330M. Pulte Group Inc. (PHM) gained over the week after strong third quarter results. The company reported 3Q EPS of $1.01 ahead of consensus of $0.95. The outperformance was driven by better than expected EBIT coming in at $385M versus expectations of $369M. Revenues came in ahead of consensus ($2.65B vs. $2.62B) due to higher average selling prices but net orders slightly missed at 5,350 homes compared to 5,431 expected along with closing at 6,031 versus 6,145. The company raised full year cash flow guidance by $100M to $1.1-1.2B. Lennar Corp. (LEN) traded in sympathy with Pulte. American Airlines Group (AAL) gained over the week after reporting third quarter results. The company reported revenue of $11.6B with unit revenue up 2.6% and unit costs ex-fuel increasing only 0.8%. The company announced EPS of $1.13 matching consensus while guiding for 4Q unit revenue growth of 1.5-3.5% and non-fuel unit cost increases of +/- 1%. American maintained full year 2018 EPS guidance of $4.50-$5.00. There was minimal news on Quotient Technology Inc. (QUOT).

Exhibit 2: Significant Contributors to Performance, 10/19/18 – 10/26/18

Name Type Return
Endurance International Group Holdings Equity 13.8%
Pulte Group Inc. Equity 10.9%
Lennar Corp. Equity 2.4%
Quotient Technology Inc. Equity 1.7%
American Airlines Group Equity 1.3%

Source: Miller Value Partners

Endo International (ENDP) crossed below the 50-day moving average while CenturyLink Inc. (CTL) crossed below the 100-day moving average and RH (RH) crossed below the 200-day moving average. Wedbush initiated on RH with an outperform rating. Flexion Therapeutics (FLXN) traded down over the week on competitive concerns over Centrexion Therapeutics development of CNTX-4975 which most analysts view as overblown. Intrexon Corp. (XON) announced the formation of Intrexon Bioinformatics Germany GmbH a bioinformatics company based in Munich.

Exhibit 3: Significant Detractors from Performance, 10/19/18 – 10/26/18

Name Type Return
Endo International Equity -7.0%
CenturyLink Inc. Equity -11.9%
RH Equity -9.4%
Flexion Therapeutics Equity -20.3%
Intrexon Corp. Equity -15.8%

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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