October 8, 2018

Opportunity Equity Update for Week Ended 10/5/18

Bausch Health Advances on Phase III Psoriasis Drug Readout While Stitch Fix Falls on Disappointing FY19 Guidance

Last week, the Opportunity Equity strategy lost -4.35%, underperforming the S&P 500’s -0.95% loss (Exhibit 1). The strategy ended the week up 17.87% YTD, or 835 basis points ahead of the S&P 500.

Exhibit 1: Preliminary Performance of Opportunity Equity Strategy Versus S&P 500, Through 10/5/181

Time Period Opportunity Equity S&P 500
Last Week (9/28 – 10/5) -4.35% -0.95%
MTD -4.35% -0.95%
QTD -4.35% -0.95%
YTD 17.87% 9.52%
Inception (annualized since 6/26/00) 7.82% 5.87%

Source: Bloomberg, Miller Value Partners

Leerink increased their price target of Endo International PLC (ENDP) to $20 up from $18, 51% upside. Bank of America reinstated Brighthouse Financial Inc. (BHF) with a neutral rating given the risks with a price target of $47, upside of 6%. Bausch Health Companies (BHC) was up over the week. The company’s Ortho Dermatologics business announced the results of its two Phase 3 randomized controlled trials of Bryhali to treat moderate-to-severe plaque psoriasis with approval expected this week. UBS raised their price target for CenturyLink Inc. (CTL) to $24 from $22, 44% upside, after speaking with management. JPMorgan Chase & Co. (JPM) crossed above the 50-day moving average as the 10-year yield curve rose above 3.2%.

Exhibit 2: Significant Contributors to Performance, 9/28/18 – 10/5/18

Name Type Return
Endo International PLC Equity 3.2%
Brighthouse Financial Inc. Equity 4.1%
Bausch Health Companies Inc. Equity 2.5%
CenturyLink Inc. Equity 3.1%
JPMorgan Chase & Co. Equity 2.3%

Source: Miller Value Partners

Stitch Fix (SFIX) fell below the 50, 100 and 200-day moving average after announcing FY4Q results and disappointing guidance. The company reported revenue of $318M slightly below consensus of $319M and EBITDA of $11M ahead of expectations of $10M. The company provided guidance for 1Q revenue of $354-360M versus consensus of $360M and EBITDA of $5-9M below consensus of $12M. The FY19 guidance had revenue of $1.47-1.53B versus consensus of $1.49B and EBITDA of $20-40M below consensus of $48M partly due to the investment in their launch into the UK market. Mallinckrodt (MNK) was down over the week after the FDA approved Praxair’s nitric oxide gas known as Noxivent which will compete with Mallinckrodt’s INOmax. The two companies are currently in litigation over INOmax IP, with an appeals ruling expected early next year. Amazon.com Inc. (AMZN) crossed below the 50-day moving average after announcing that it would raise its US minimum wage to $15/hr with analysts modeling a decline in profit margins. Quotient Technology (QUOT) crossed below the 50 and 100-day moving average. There was minimal news on RH (RH).

Exhibit 3: Significant Detractors from Performance, 9/28/18 – 10/5/18

Name Type Return
Stitch Fix Inc. Equity -39.9%
RH Equity -13.0%
Mallinckrodt Equity -11.7%
Amazon.com Inc. Equity -5.7%
Quotient Technology Equity -9.8%

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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