April 1, 2019

Opportunity Equity Update for Week Ended 3/29/19

Pulte Crosses 50 and 200-day Moving Average While RH Falls on 2019 Guidance

Last week, the Opportunity Equity strategy lost -0.52%, underperforming the S&P 500’s 1.23% gain (Exhibit 1). The strategy ended the week up 13.74% YTD, or 9 basis points ahead of the S&P 500.

Exhibit 1: Preliminary Performance of Opportunity Equity Strategy Versus S&P 500, Through 3/29/191

Time Period Opportunity Equity S&P 500
Last Week (3/22 – 3/29) -0.52% 1.23%
MTD -4.96% 1.94%
QTD 13.74% 13.65%
YTD 13.74% 13.65%
Inception (annualized since 6/26/00) 6.84% 5.67%

Source: Bloomberg, Miller Value Partners

Pulte Group Inc. (PHM) crossed above the 50 and 200-day moving average. Celgene Corp. (CELG) gained over the week as Bristol-Myers Squibb Co’s proposed $71B takeover bid gained ISS backing saying the proposed transaction has “sound strategic rationale and the valuation appears reasonable”. Delta Air Lines Inc. (DAL) crossed above the 100-day moving average and American Airlines Group Inc. (AAL) gained after Southwest Airlines cut their revenue guidance by $150M due to the 737 Max grounding, removing an overhang for the airline names. RBC increased their price target for Alexion Pharmaceuticals (ALXN) to $186, 38% upside, up from $165 previously citing the company’s expanding pipeline and including their three near-term assets, ALXN1840, ALXN1830, and Ultomiris.

Exhibit 2: Significant Contributors to Performance, 3/22/19 – 3/29/19

Name Type Return
Pulte Group Inc Equity 5.2%
Celgene Corp Equity 7.0%
Delta Air Lines Inc Equity 3.8%
Alexion Pharmaceuticals Equity 3.8%
American Airlines Group Inc Equity 3.9%

Source: Miller Value Partners

RH (RH) fell below the 100-day moving average after releasing mixed 4Q results and disappointing on 2019 guidance. The company reported 4Q EPS of $3 ahead of consensus of $2.86 driven by lower expenses and share buybacks. The company’s FCF generation disappointed coming in at $163M in 2018 below guidance of $260M due to lower than expected 4Q sales. For 2019, the company expects revenue growth of 3-5%, lower than the 8-10% previously guided. The company is guiding for EPS of $8.41-$9.08, lower than previous guidance of $8.97-$9.90 and lower than expectations of $10.12. The company is pushing back the opening of their RH Guesthouse in NYC to Spring 2020 and they have pushed back the debut of RH Color to 2020. RH will no longer report comparable sales going forward. Teva Pharmaceuticals (TEVA) and Endo International (ENDP) declined over the week as Purdue Pharma agreed to settle a drug-addiction lawsuit with Oklahoma in a case where the state was seeking $20B. NXP Semiconductors (NXPI) crossed below the 50 and 200-day moving average but formed a golden cross as the 50-day rose above the 200-day moving average. There was minimal news on Avon Products Inc. (AVP).

Exhibit 3: Significant Detractors from Performance, 3/22/19 – 3/29/19

Name Type Return
RH Equity -21.5%
Teva Pharmaceutical-SP ADR Equity -4.0%
Avon Products Inc Equity -3.9%
Endo International plc Equity -3.6%
NXP Semiconductors Equity -2.5%

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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