April 16, 2018

Opportunity Equity Update for Week Ended 4/13/18

Valeant crosses the 200-day moving average while American is down on pre-earnings guidance

Last week, the Opportunity Equity strategy gained 0.72%, underperforming the S&P 500’s 2.04% rise (Exhibit 1). The strategy ended the week down -2.28% YTD, or 218 basis points behind the S&P 500.

Exhibit 1: Preliminary Performance of Opportunity Equity Strategy Versus S&P 500, Through 4/13/181

Time Period Opportunity Equity S&P 500
Last Week (4/6 -4/13) 0.72% 2.04%
MTD 0.20% 0.66%
QTD 0.20% 0.66%
YTD -2.28% -0.10%
Inception (annualized since 6/26/00) 6.91% 5.48%

Source: Bloomberg, Miller Value Partners

Valeant Pharmaceuticals International Inc. (VRX) crossed above the 200-day and 50-day moving average. The company announced the redemption of $150M aggregate principal amount of its 6.375% Senior Unsecured Notes due 2020, using cash on hand leaving total long-term debt at approximately $25.4B. Flexion Therapeutics (FLXN) crossed above the 200, 100 and 50-day moving average. Amazon.com Inc. (AMZN) gained over the week after multiple analysts called for a buying opportunity on the recent weakness. Pandora Media Inc. (P) crossed above the 50 and 100-day moving average. Triton Digital released its January 2018 Top 20 ranking data for digital audio stations which implied Pandora’s listening hours increased 3.8% YoY in January. There was minimal news on Intrexon Corp. (XON).

Exhibit 2: Significant Contributors to Performance, 4/6/18 – 4/13/18

Name Type Return
 Intrexon Corp. Equity 14.7%
 Valeant Pharmaceuticals International Inc. Equity 11.1%
 Flexion Therapeutics Equity 5.2%
 Amazon.com Inc. Equity 1.8%
 Pandora Media Inc. Equity 6.9%

Source: Miller Value Partners

American Airlines Group Inc. (AAL) was down over the week after announcing improved 1Q guidance for TRASM, CASMx, and pre-tax margin. 1Q total revenue per available seat mile (TRASM) guidance increased from 2-4% to 3-4% while 1Q cost per available seat mile excluding fuel guidance was improved to 2-4% from 3-5% resulting in a pre-tax margin that is higher than expected at 4-5% vs. 2-4% prior. MGIC Investment Corp. (MTG) was down over the week after announcing a reduction in monthly premium pricing on the heels of US corporate tax reform representing an average 11% cut across their BPMI rate card effective June 4. The company also released March 2018 operating statistics showing insurance in force at $198b, up 8% YoY with total default inventory down 9% YoY.  Lennar Corp. (LEN) crossed below the 50 and 200-day moving average after announcing a large management transition. The company announced the promotion of Stuart Miller to Executive Chairman from CEO, Rick Beckwitt to CEO from President, Jon Jaffe will maintain his current role of COO but assume the title of President, and Diane Bassette as the newly appointed CFO in addition to her ongoing position as Treasurer and Bruce Gross will transition to CEO of Lennar Financial Services from CFO. United Continental Holdings (UAL) crossed below the 50 and 100-day moving average after largely reiterating its current guidance for the first quarter. United expects Q1 revenue per available seat mile (RASM) to be up 2.7% at the upper end of the current guidance of 1-3% and cost per available seat mile excluding fuel (CASMx) up 0.6% within the previous guidance of 1-2%. Capacity growth for the quarter of 3.6% is on the low end of the 3.5-4% guidance due to weather related cancellations. There was minimal news on RH (RH).

Exhibit 3: Significant Detractors from Performance, 4/6/18 – 4/13/18

Name Type Return
 American Airlines Group Inc. Equity -8.8%
 MGIC Investment Corp. Equity -16.0%
 Lennar Corp. Equity -7.5%
 RH Equity -3.9%
 United Continental Holdings Equity -3.1%

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.

©2018 Miller Value Partners, LLC

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