April 2, 2018

Opportunity Equity Update for Week Ended 3/29/18

RH Rises After 4Q Earnings Release While Amazon Falls Below 50-Day Moving Average

Last week, the Opportunity Equity strategy gained 2.06%, outperforming the S&P 500’s 2.05% rise (Exhibit 1). The strategy ended the week down -2.47% YTD, or 171 basis points behind the S&P 500.

Exhibit 1: Preliminary Performance of Opportunity Equity Strategy Versus S&P 500, Through 3/29/181

Time Period Opportunity Equity S&P 500
Last Week (3/23 -3/29) 2.06% 2.05%
MTD -2.21% -2.54%
QTD -2.47% -0.76%
YTD -2.47% -0.76%
Inception (annualized since 6/26/00) 6.91% 5.46%

Source: Bloomberg, Miller Value Partners

RH (RH) crossed above the 50, 100 and 200-day moving average after announcing fourth quarter results. Fourth quarter adjusted EPS was $1.69 compared to consensus of $1.56 on sales of $670M vs. consensus of $672M with adjusted operating margins of 11.2% vs. 10.4% expected. Management guided for 2018 sales of $2.53b-$2.57B on comparable sales growth of 5-7%. These numbers are slightly lower than previous guidance due to the delay in the opening of the New York Design Gallery but expected operating margin was raised by 20bps to 9.2% – 10.2% and adjusted EPS was guided to $5.45-$6.20. Longer term guidance has revenue growth of 8-12% in 2019 with operating margins expected to reach the low to mid-teens by 2021 with revenues in North America expected to still reach $4-5B by 2022 or 2023. JPMorgan Chase & Co. (JPM/WS) warrants and CenturyLink Inc. (CTL) crossed above the 100-day moving average. Allergan (AGN) crossed above the 50-day moving average after Biohaven announced positive Phase III results for rimegepant in acute migraines but with efficacy no better than Allergan’s ubrogepant. Most analysts viewed the results as incrementally positive for Allergan. There was minimal news on Valeant Pharmaceuticals International Inc. (VRX).

Exhibit 2: Significant Contributors to Performance, 3/23/18 – 3/29/18

Name Type Return
RH Equity 22.6%
JPMorgan Chase & Co. – Warrants Equity 4.3%
CenturyLink Inc. Equity 5.9%
Valeant Pharmaceuticals International Inc. Equity 3.6%
Allergan Equity 5.5%

Source: Miller Value Partners

Amazon.com Inc. (AMZN) crossed below the 50-day moving average following an Axios article that suggested that President Trump does not like Amazon. The President has previously tweeted his issues with Amazon focusing on lack of sales tax collection among third-party sellers and Amazon’s use of USPS. Stitch Fix Inc. (SFIX) fell below the 50-day moving average. Intrexon Corp’s (XON) ActoBio Therapeutics subsidiary received approval from the FDA for the initiation of a Phase 1b/2a clinical trial evaluating AG019 for the treatment of early-onset type 1 diabetes (T1D). Quotient Technology Inc. (QUOT) crossed below the 200-day moving average. There was minimal news on Flexion Therapeutics (FLXN).

Exhibit 3: Significant Detractors from Performance, 3/23/18 – 3/29/18

Name Type Return
Amazon.com Inc. Equity -3.2%
Stitch Fix Inc. Equity -8.7%
Intrexon Corp. Equity -3.0%
Flexion Therapeutics Equity -2.5%
Quotient Technology Inc. Equity -1.9%

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.

©2018 Miller Value Partners, LLC

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