February 10, 2020

Opportunity Equity Update for Week Ended 2/7/20

Teva and Endo Up on Opioid Settlement Optimism While Ziopharm Down on Equity Raise

Last week, the Opportunity Equity strategy gained 3.13%, underperforming the S&P 500’s 3.21% rise (Exhibit 1). The strategy ended the week up 0.54% YTD, or 263 basis points behind the S&P 500.

Exhibit 1: Preliminary Performance of Opportunity Equity Strategy Versus S&P 500, Through 2/7/201

Time Period Opportunity Equity S&P 500
Last Week (1/31 – 2/7) 3.13% 3.21%
MTD 3.13% 3.21%
QTD 0.54% 3.17%
YTD 0.54% 3.17%
Inception (annualized since 6/26/00) 7.46% 6.37%

Source: Bloomberg, Miller Value Partners

Teva Pharmaceuticals (TEVA) and Endo International (ENDP) gained over the week as investors became more optimistic on a potential opioid settlement. Guggenheim’s analyst trimmed the top end of his estimate on TEVA’s share of a settlement to $3-6B over ten years down from $3-7B previously and for ENDP he estimates $2-3B over 10 years from $3-4B. The decline was based on ENDP’s Oklahoma settlement. Brighthouse Financial Inc. (BHF) crossed above the 50 and 100-day moving average. The company announced that it has partnered with Market Synergy Group for its SecureAdvantage 6-year Fixed Index Annuity, broadening its distribution reach. Micron Technology Inc. (MU) gained over the week as Raymond James upgraded the name to Strong Buy from Market Perform with a price target of $70, upside of 23%. There was minimal news on ADT Inc. (ADT).

Exhibit 2: Significant Contributors to Performance, 1/31/20 – 2/7/20

Name Type Return
Teva Pharmaceuticals Equity 16.9%
Endo International Equity 12.5%
Brighthouse Financial Inc. Equity 8.5%
Micron Technology Inc. Equity 7.1%
ADT Inc. Equity 6.3%

Source: Miller Value Partners

Ziopharm Oncology Inc. (ZIOP) fell after announcing a public share offering of 32m shares with a price of $3.25, 20% discount to the prior close. Peloton Interactive Inc. (PTON) fell below the 50-day moving average after releasing FY2Q20 results which beat but disappointed on FY3Q20 guidance. The company beat 2Q expectations with ending subscribers of 712k versus 689k expected, revenue of $466M ahead of consensus of $424M and adjusted EBITDA of -$28.4M versus expectations of -$64M. The company guided for 3Q revenue of $475M below consensus of $491M with adjusted EBITDA in-line with consensus at -$30M vs. -$31M. The company raised full year subscribers to 925k compared to expectations of 917k and revenues of $1.54B vs. $1.49B expected. Genworth Financial Inc. (GNW) fell below the 200-day moving average after releasing 4Q results. On the call, management noted that they are prepared to move on from the deal and explore “Plan B” options if the New York State Department of Financial Services (NYSDFS) fails to approve the deal by March 31st. GNW has been in discussions with the NYSDFS who had previously approved the deal but that approval had expired. NYSDFS has informed the company that it would need to make a capital contribution to GLICNY (Genworth Life Insurance Company of New York) to gain re-approval. The company noted that a potential “Plan B” option could involve the sales of one or both of its US and Australia mortgage insurance businesses with the proceeds being used to reduce debt or return capital to shareholders. There was minimal news on Flexion Therapeutics (FLXN).

Exhibit 3: Significant Detractors from Performance, 1/31/19 – 2/7/20

Name Type Return
Ziopharm Oncology Inc. Equity -10.9%
Peloton Interactive Inc. Equity -17.3%
Genworth Financial Inc. Equity -10.9%
Flexion Therapeutics Equity -7.4%
Ziopharm Oncology Restricted Warrants Equity -8.1%

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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