February 4, 2019

Opportunity Equity Update for Week Ended 2/1/19

Avon Gains on Work Force Reduction While Allergan Declines on 2019 Guidance

Last week, the Opportunity Equity strategy gained 1.73%, outperforming the S&P 500’s 1.62% rise (Exhibit 1). The strategy ended the week up 18.09% YTD, or 996 basis points ahead of the S&P 500.

Exhibit 1: Preliminary Performance of Opportunity Equity Strategy Versus S&P 500, Through 2/1/191

Time Period Opportunity Equity S&P 500
Last Week (1/25 – 2/1) 1.73% 1.62%
MTD -0.04% 0.10%
QTD 18.09% 8.13%
YTD 18.09% 8.13%
Inception (annualized since 6/26/00) 7.11% 5.43%

Source: Bloomberg, Miller Value Partners

Avon Products Inc. (AVP) gained over the week after disclosing a 10% reduction in global headcount, a 25% reduction in SKU count, and a 15% reduction in inventory. The stock broke out above the 50 and 100 weekly moving average which was followed by positive commentary on the stock by Bill Miller on CNBC. Facebook Inc. (FB) released 4Q results which beat expectations. The company announced total ad revenue of $16.64B ahead of consensus of $16.19B with operating margins of 46.2% versus 44.8% and EPS of $2.38 vs. $2.18 expected. The company guided for FY19 revenue of $70.01B vs. $68.4B expected and EPS of $7.98 ahead of consensus of $7.39. Mobile ads represented 93% of total ad sales at $15.51B. Daily active users (DAUs) grew 9% YoY to 1.5B with monthly active users (MAUs) coming in at 2.3B, growth of 9% YoY. Bausch Health Companies (BHC) paid off $100M of its outstanding debt balance helping to reinforce its commitment to debt reduction. Lennar Corp. (LEN) was supported over the week by a strong November new home sales report with sales rising 16.9% sequentially to 675k ahead of expectations for 570k. Delta Air Lines (DAL) climbed over the week following the temporary end to the government shut down.

Exhibit 2: Significant Contributors to Performance, 1/25/19 – 2/1/19

Name Type Return
Avon Products Inc. Equity 26.3%
Facebook Inc. Equity 11.2%
Bausch Health Companies Equity 3.6%
Lennar Corp. Equity 5.8%
Delta Air Lines Equity 4.7%

Source: Miller Value Partners

Allergan (AGN) crossed below the 50-day moving average after releasing 4Q results that beat expectations but disappointed on 2019 guidance. Revenues came in at $4.08B ahead of consensus of $4.01B with EPS of $4.29 beating consensus of $4.15. The company provided 2019 guidance with revenues $15-15.3B (vs. consensus $15.4B) and EPS of >$16.36 (vs. consensus $16.32) supported by their share buyback program. The company announced that it no longer plans to sell its women’s health business but still expects to sell its anti-infectives business. Bank of America (BAC) fell below the 200-day moving average after the Fed voted to maintain its target rate range at 2.25-2.5% last week. Amazon.com Inc. (AMZN) announced 4Q results that beat expectations but provided mixed Q1 guidance. The company reported revenues of $72.4B beating consensus of $71.9B and EPS of $6.04 ahead of expectations of $5.65. AWS revenue came in at $7.43B ahead of the Street at $7.29B and up 45% YoY. The company guided for 1Q revenue of $56-60B versus the Street at $60.9B with operating profit of $2.2-3.3B below consensus of $3.1B. The company spoke of investment levels increasing in 2019. There was minimal news on Quotient Technology (QUOT) and RH (RH).

Exhibit 3: Significant Detractors from Performance, 1/25/19 – 2/1/19

Name Type Return
Allergan Equity -10.3%
Bank of American Corp. Equity -4.1%
Amazon.com Inc. Equity -2.7%
Quotient Technology Equity -2.3%
RH Equity -1.3%

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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