November 12, 2018

Opportunity Equity Update for Week Ended 11/9/18

Bausch Gains on 3Q Results While Qualcomm Loses on Weak 1Q Guidance

Last week, the Opportunity Equity strategy gained 0.03%, underperforming the S&P 500’s 2.21% rise (Exhibit 1). The strategy ended the week up 12.77% YTD, or 703 basis points ahead of the S&P 500.

Exhibit 1: Preliminary Performance of Opportunity Equity Strategy Versus S&P 500, Through 11/9/181

Time Period Opportunity Equity S&P 500
Last Week (11/2 – 11/9) 0.03% 2.21%
MTD 3.76% 2.65%
QTD -8.49% -4.37%
YTD 12.77% 5.74%
Inception (annualized since 6/26/00) 7.52% 5.63%

Source: Bloomberg, Miller Value Partners

Bausch Health Companies (BHC) gained over the week after announcing 3Q results which beat expectations. The company had revenues of $2,136M ahead of consensus of $2,087M and adjusted EBITDA of $916M versus $821M expected leading to net income of $403M versus $294M. Full year topline guidance was maintained but EBITDA was raised to $3.30-3.45B from $3.20-3.35B previously. The beat was related to lower than expected SG&A expenses while the Dermatology business was finally flat and on-pace for recovery with new approvals. Mallinckrodt (MNK) crossed above the 50 and 100-day moving average after announcing 3Q results which beat consensus. The company reported revenue of $640M ahead of consensus of $636M with EPS of $2.10 ahead of expectations for $1.80. Acthar revenue came in ahead of consensus with $290M vs. $287M and management expects Acthar revenue to be greater than $1B in both 2018 and 2019. Management raised full year EPS guidance to $7.00-7.20 from $6.50-6.90 previously. Genworth Financial Inc. (GNW) crossed above the 50 and 100-day moving average. Flexion Therapeutics (FLXN) rose over the week after announcing on Monday that they had received a J-code for Zilretta which will become effective on January 1st. The company also reported 3Q results which beat consensus with revenues of $7M versus $6.7M expected with EPS of -$1.15 better than expectations of -$1.20. United Continental Airlines (UAL) was up after reporting October traffic with revenue per passenger mile increasing 7.5% to $19.41B while consolidated capacity grew 5.9% along with the load factor which increased 120bps to 82.3%.

Exhibit 2: Significant Contributors to Performance, 11/2/18 – 11/9/18

Name Type Return
Bausch Health Companies Equity 12.5%
Mallinckrodt Equity 15.8%
Genworth Financial Inc. Equity 11.3%
Flexion Therapeutics Equity 13.8%
United Continental Holdings Equity 4.1%

Source: Miller Value Partners

Endo International (ENDP) crossed below the 50 and 100-day moving average. At the beginning of the week the company released results from their P3 Cellulite study which met its primary endpoints and showed statistical significance against placebo. This was followed by the release of 3Q earnings which beat expectations and included an increase in fullyear guidance. The company reported revenue of $745.5M ahead of $692.8M with EPS of $0.71 beating expectations of $0.59. The company raised full year adjusted EBITDA guidance to $1.32-1.34B from $1.27-1.33B and adjusted full year EPS guidance to $2.65-2.75 from $2.50-2.60. Intrexon Corp. (XON) fell over the week. The company announced 3Q results which missed on both the top and bottom line. The company reported revenue of $32.4M below consensus of $42.5M with an EPS of -$0.44 versus -$0.27 expected. CenturyLink Inc. (CTL) crossed below the 100-day moving average after reporting 3Q results which slightly missed on the topline but beat on the bottom line. The company reported sales of $5.82B below $5.88B expected leading to a slight miss on EBITDA of $2.23B versus $2.29B expected but beat on EPS of $0.25 versus $0.22. The company maintained full year EBITDA guidance of $9.0-9.15B but increased FCF guidance to $4.0-4.2B up from $3.6-3.8B previously. Endurance International Group Holdings (EIGI) crossed below the 50, 100 and 200-day moving average. Oppenheimer downgraded the stock to perform from outperform citing valuation and lack of visibility into 2019. Qualcomm Inc. (QCOM) fell below the 200-day moving average after announcing strong 4Q results but soft F1Q guidance. The company reported revenue of $5.38B ahead of the Street at $5.52B with EPS of $0.90 ahead of expectations of $0.85. The company guided for fiscal first quarter revenue of $4.50-5.30B below the Street at $5.57B along with EPS ex. one time tax gain of $0.65, below consensus of $0.93. The headwinds impacting the guidance are expected to last through the first half of the fiscal year. Earlier in the week a Federal judge ruled against QCOM in the FTC case requiring QCOM to license its SEPs to modem chip suppliers.

Exhibit 3: Significant Detractors from Performance, 11/2/18 – 11/9/18

Name Type Return
Endo International Equity -21.5%
Intrexon Corp. Equity -16.9%
CenturyLink Inc. Equity -9.8%
Endurance International Group Holdings Equity -12.6%
Qualcomm Inc. Equity -10.4%

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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