February 25, 2020

Opportunity Equity Update for Week Ended 2/21/20

Teva’s Price Target Raised at UBS While Tivity Falls on Disappointing Results and Guidance

Last week, the Opportunity Equity strategy lost -2.62%, underperforming the S&P 500’s -1.22% decline (Exhibit 1). The strategy ended the week up 0.35% YTD, or 324 basis points behind the S&P 500.

Exhibit 1: Preliminary Performance of Opportunity Equity Strategy Versus S&P 500, Through 2/21/201

Time Period Opportunity Equity S&P 500
Last Week (2/14 – 2/21) -2.62% -1.22%
MTD 2.93% 3.63%
QTD 0.35% 3.59%
YTD 0.35% 3.59%
Inception (annualized since 6/26/00) 7.44% 6.38%

Source: Bloomberg, Miller Value Partners

UBS raised their price target on Teva Pharmaceuticals (TEVA) to $14, upside of 6%, while maintaining a neutral rating on the stock. TEVA announced that its registration studies for Austedo in pediatric patients with moderate to severe Tourette Syndrome did not meet the primary endpoint. The company also announced that the U.S. Patent Trial Appeal Board (PTAB) determined that 6 of the 9 patents on AJOVY were invalid but analysts do not expect a negative impact as the company still has 12-year regulatory exclusivity through 2030. There was minimal news on the other top contributors.

Exhibit 2: Significant Contributors to Performance, 2/14/20 – 2/21/20

Name Type Return
Stitch Fix Inc. Equity 10.3%
Teva Pharmaceutical Equity 7.9%
Precigen Inc. (previously XON) Equity 10.8%
Flexion Therapeutics Equity 4.7%
Ziopharm Oncology Inc. Equity 3.8%

Source: Miller Value Partners

Tivity Health Inc. (TVTY) fell below the 50, 100 and 200-day moving average after reporting 4Q results and announcing the departure of CEO, Donato Tramuto, The company reported adjusted EPS of $0.40 below consensus of $0.55 on revenues of $272.8M below consensus of $275.0M and adjusted EBITDA $55.5M compared to $64.0M expected. The miss was primarily driven by the Nutrition segment which has underperformed since they acquired it in March 2019. 2020 guidance came in below consensus with revenues of $1,243-1,285 versus $1,342 expected and EBITDA of $190-205M versus $251M estimated. All of this prevents TVTY from being able to hit its leverage target of 3.5x by the end of 2020. Medifast Inc. (MED) fell below the 50 and 100-day moving average. Engaged Capital increased their ownership of Medifast shares to 1.16M shares compared to 647.9k shares previously. Peloton Interactive Inc. (PTON) declined over the week as investor increasingly focused on the lock-up release on February 24th. One of Peloton’s competitors, Flywheel, announced that it will stop selling its bikes and stop offering its At Home online classes at the end of March. Current customers of At Home were mailed a trade-in offer for Peloton bikes. American Airlines Group Inc. (AAL) fell below the 50, 100 and 200-day moving average. The company announced that they extended the 737 MAX’s planned absence from their schedules until Mid-August. The company priced $500m unsecured senior notes due 2025 at a yield of 3.75% in a private offering. Bausch Health Companies Inc. (BHC) fell below the 100-day moving average after announcing 4Q results and 2020 guidance. The company reported revenues of $2.22B ahead of consensus of $2.20B with EBITDA of $898M below consensus of $908M. The company guided for 2020 revenues of $8.65-8.85B vs. $8.78B estimated and adjusted EBITDA of $3.50-3.65B vs consensus of $3.62B with operating cash flow of $1.5B and $300M of CAPEX leaving them with free cash flow generation of ~$1.2B for 2020, or a yield of 13%.

Exhibit 3: Significant Detractors from Performance, 2/14/19 – 2/21/20

Name Type Return
Tivity Health Inc. Equity -46.4%
Medifast Inc. Equity -7.4%
Peloton Interactive Inc. Equity -7.9%
American Airlines Group Inc. Equity -4.7%
Bausch Health Companies Inc. Equity -4.5%

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.

©2019 Miller Value Partners, LLC

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