March 23, 2020

Opportunity Equity Update for Week Ended 3/20/20

Peloton Gains as Gyms Close While Airlines Decline on Lower Demand

Last week, the Opportunity Equity strategy lost lost -18.72%, underperforming the S&P 500’s -14.95% decline (Exhibit 1). The strategy ended the week down -46.35% YTD, or 1,802 basis points behind the S&P 500.

Exhibit 1: Preliminary Performance of Opportunity Equity Strategy Versus S&P 500, Through 3/20/201

Time Period Opportunity Equity S&P 500
Last Week (3/13 – 3/20) -18.72% -14.95%
MTD -37.79% -21.87%
QTD -46.35% -28.33%
YTD -46.35% -28.33%
Inception (annualized since 6/26/00) 4.05% 4.39%

Source: Bloomberg, Miller Value Partners

Precigen Inc. (PGEN) gained as Chairman, Randal Kirk, purchased $2.2M shares. Peloton Interactive (PTON) gained over the week as more cities required gyms to close due to the spread of COVID-19. The company also rolled out a free 90-day trial of its digital offering, up from the 30-day free trial that they had been offering. PTON was added to Wedbush’s best ideas list with a price target of $35, upside of 52% while JPMorgan lowered their price target to $35 but maintained and overweight rating. Stitch Fix Inc. (SFIX) gained over the week as Nomura initiated coverage on the name with a buy rating and a price target of $18, upside of 47%. Director, Bill Gurley, purchased $3.2M worth of stock. The company also announced the closure of two of their distribution centers due to public health orders. They plan to service their customers through their other distribution centers in the meantime. Amazon.com Inc. (AMZN) gains over the week as the company experiences increased demand for household items as people avoid stores during the ongoing COVID-19 pandemic. The company announced that it is looking to hire 100k warehouse and delivery workers to meet the increase in demand. There was minimal news on Ziopharm Oncology (ZIOP).

Exhibit 2: Significant Contributors to Performance, 3/13/20 – 3/20/20

Name Type Return
Precigen Inc. Equity 46.8%
Peloton Interactive Equity 16.7%
Stitch Fix Inc. Equity 10.0%
Ziopharm Oncology Inc. Equity 10.6%
Amazon.com Inc. Equity 3.4%

Source: Miller Value Partners

OneMain Holding Inc. (OMF) fell over the week as investors worry about the potential negative economic impact from the coronavirus outbreak. RBC initiated on the name with an Outperform rating and a price target of $35, upside of 91%. While the company issued a report on Friday discussing their current business position. The company noted that they have $4.4B in cash which they believe is sufficient to run operations under numerous stress cases through 2021 along with $6B of unencumbered collateral and $3.6B undrawn and committed conduit lines that they can draw if needed. They reiterated that they expect to maintain profitability even in a 2008/2009 type of downturn. There has been a string of insider buying with the Chairman, Jay Levine, purchasing 30k shares and the CEO, Doug Shulman, purchasing 3.25k shares and a Director, Richard Smith, buying 2k shares. In addition, the company increased their buyback program from $100M to $200M, which represents ~8% of shares outstanding. Delta Air Lines Inc. (DAL) and American Airlines Group Inc. (AAL) continued to fall over the week as demand disappeared in the wake of COVID-19 while US airlines seek up to $50B in government aid. Delta’s management announced that it has entered into a $2.6B secured term loan backed by aircraft which can be increased to $4B upon request. The company also announced the suspension of its dividends and share buybacks in an effort to preserve liquidity as well as guiding for 2Q revenue growth of -80%. American secured $1B credit line while cutting its international flying capacity by 75% and its domestic capacity by 30% with further cuts expected in May. Lennar Corp. (LEN) fell over the week after reporting 1Q results which beat expectations. The company reported EPS of $1.27 ahead of $0.84 expected with homebuilding revenues growing 15% YoY and EBIT margin coming in at 11%. The company had unit order growth of 18% YoY ahead of consensus of 12%. Management suspended their 2020 guidance due to uncertainties around COVID-19’s impact and noted the suspension of their buyback program and their plan to reduce land spend in the near-term to conserve cash. Bank of America out with a cautious note on Bausch Health Companies Inc. (BHC) noting the potential for COVID-19 to negatively impact the elective procedures in B&L surgical business line.

Exhibit 3: Significant Detractors from Performance, 3/13/20 – 3/20/20

Name Type Return
OneMain Holding Inc. Equity -42.1%
Delta Air Lines Inc. Equity -44.3%
Bausch Health Companies Inc. Equity -27.3%
Lennar Corp. Equity -25.4%
American Airlines Group Inc. Equity -27.0%

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.

©2019 Miller Value Partners, LLC

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