January 14, 2019

Opportunity Equity Update for Week Ended 1/11/19

Pharmaceutical Names Gain After J.P. Morgan Health Care Conference While Airlines Decline on American’s Lower Revenue Guidance

Last week, the Opportunity Equity strategy gained 5.24%, outperforming the S&P 500’s 2.58% rise (Exhibit 1). The strategy ended the week up 12.24% YTD, or 861 basis points ahead of the S&P 500.

Exhibit 1: Preliminary Performance of Opportunity Equity Strategy Versus S&P 500, Through 1/11/191

Time Period Opportunity Equity S&P 500
Last Week (1/4 – 1/11) 5.24% 2.58%
MTD 12.24% 3.63%
QTD 12.24% 3.63%
YTD 12.24% 3.63%
Inception (annualized since 6/26/00) 6.84% 5.21%

Source: Bloomberg, Miller Value Partners

RH (RH) crossed above the 50, 100 and 200-day moving average. Endo International (ENDP) gained over the week after Teva CEO forecasted stabilizing generic prices at the J.P. Morgan Healthcare Conference. Mallinckrodt (MNK) also gained after presenting at the J.P. Morgan Healthcare Conference where it provided an outline for its plan to spin out its generic business by the 2H19. Lennar Corp. (LEN) crossed above the 50 and 100-day moving average after releasing their 4Q results which missed expectations. The company reported EPS of $1.87, below the Street at $1.93 with orders declining 2% YoY below consensus at up 3%. Gross margins came in weaker at 21.4% ex. purchase accounting versus 21.6% expected and closings were 14.2k versus 14.5k expected. The company provided guidance for 1Q19 where they expect deliveries of 9-9.5k units with ASP of $410k and gross margins of 20-20.5% and SG&A of 9.5-9.8% with orders of 9.5-10k units. For FY19 they expect to deliver over 50k units compared to prior guidance of 53k. On the call the company spoke about improvement in qualified traffic in December as a result of the rate pull back. Bausch Health Companies (BHC) crossed above the 200-day moving average after presenting at the J.P. Morgan Healthcare Conference where it indicated that total company revenue in 2019 should grow YoY and reiterated their 3-year revenue CAGR of 4-6% and EBITDA CAGR of 5-8%. The company also highlighted that it expects cash from operations to be >$1B in 2019 which will be used to reduce debt or for bolt-on acquisitions.

Exhibit 2: Significant Contributors to Performance, 1/4/19 – 1/11/19

Name Type Return
RH Equity 10.5%
Endo International Equity 14.2%
Mallinckrodt Equity 17.4%
Lennar Corp. Equity 12.6%
Bausch Health Companies Equity 6.5%

Source: Miller Value Partners

United Continental Holdings (UAL) traded down over the week in sympathy with American Airlines Group Inc. (AAL) which lowered its 4Q18 unit revenue guidance and full year 2018 EPS guidance due to weaker-than-expected domestic performance in December. American expects unit revenue to be up 1.5% compared to prior guidance of 1.5-3.5% along with 2018 EPS of $4.40-4.60 compared to prior guidance of $4.50-$5.00. United was downgraded at Imperial Capital to underperform with a price target of $73, downside of 8.8%, while it was upgraded at JPMorgan to overweight with a price target of $95, upside of 18.6%. JPMorgan Chase & Co. (JPM) has agreed to pay more than $135m to settle SEC charges that alleged the bank improperly handled “pre-released” American Depositary Receipts. The company was downgraded at Jefferies to hold from buy with a price target of $110, upside of 9.2%. There was minimal news on GTY Technology Holdings (GTYHU).

Exhibit 3: Significant Detractors from Performance, 1/4/19 – 1/11/19

Name Type Return
United Continental Holdings Equity -3.2%
JPMorgan Chase & Co. Equity -0.8%
American Airlines Group Inc. Equity -0.8%
GTY Technology Holdings Equity 0.0%
Cash Equity 0.0%

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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