April 30, 2018

Opportunity Equity Update for Week Ended 4/27/18

Pulte Group Climbs on Earnings While American Airlines Falls after Earnings

Last week, the Opportunity Equity strategy gained 1.96%, outperforming the S&P 500’s 0.00% move (Exhibit 1). The strategy ended the week up 0.19% YTD, or 25 basis points behind the S&P 500.

Exhibit 1: Preliminary Performance of Opportunity Equity Strategy Versus S&P 500, Through 4/27/181

Time Period Opportunity Equity S&P 500
Last Week (4/20 -4/27) 1.96% 0.00%
MTD 2.73% 1.21%
QTD 2.73% 1.21%
YTD 0.19% 0.44%
Inception (annualized since 6/26/00) 7.04% 5.50%

Source: Bloomberg, Miller Value Partners

Pulte Group Inc. (PHM) crossed above the 50 and 200-day moving average after announcing first quarter results which beat expectations and raising FY18 guidance. Pulte reported 1Q EPS of $0.59 ahead of consensus of $0.46 with net order growth of +12% YoY and strong gross margins of 23.6%. The company raised its 2018 closing guidance by 500 to 22,500-23,500 and slightly raised its average selling price guidance by $5k to $405-420k while maintaining its gross margin guidance 23.0-23.5% and lowering SG&A expenses as a percentage of sales to 10.8-11.3%. Alexion Pharmaceuticals (ALXN) crossed above the 50 and 100-day moving average after releasing first quarter results which beat. The company reported non-GAAP EPS of $1.68 vs consensus of $1.50 on total revenues of $930.9M vs. consensus of $923M. Alexion raised full year guidance with total revenue expected to be $3.925-3.985B (vs. prior $3.85-3.95B) and non-GAAP EPS was increased to $6.75-6.90 from $6.60-6.80 previously. The company also announced successful read outs from its ALXN1210 pivotal switch study. RH (RH) crossed above the 100-day moving average. Foot Locker Inc. (FL) crossed above the 50 and 200-day moving average. There was minimal news on Valeant Pharmaceuticals International Inc. (VRX).

Exhibit 2: Significant Contributors to Performance, 4/20/18 – 4/27/18

Name Type Return
 Pulte Group Inc. Equity 8.8%
 Alexion Pharmaceuticals Equity 12.6%
 RH Equity 6.1%
 Foot Locker Inc. Equity 8.6%
 Valeant Pharmaceuticals International Inc. Equity 5.2%

Source: Miller Value Partners

American Airlines Group Inc. (AAL) was down over the week after announcing first quarter earnings which beat expectations but lower full year guidance due to higher fuel costs. The company had first quarter EPS of $0.75 slightly ahead of consensus of $0.73 with total revenue increasing 5.9% to $10.4B. The company lowered its 2018 EPS guidance to $5-6 from $5.50-6.50 due to higher fuel prices. The company guided for 2Q revenue per available seat mile to increase 1.5-3.5%. United Continental Holdings (UAL) and Delta Air Lines Inc. (DAL) fell below the 50 and 100-day moving average in sympathy with American. Wayfair Inc. (W) was down over the week. Morgan Stanley initiated on the name with an equal weight rating and a price target of $75, upside of 13%. JPMorgan Chase & Co. Warrants (JPM/WS) fell below the 100-day moving average.

Exhibit 3: Significant Detractors from Performance, 4/20/18 – 4/27/18

Name Type Return
 American Airlines Group Inc. Equity -7.2%
 United Continental Holdings Equity -5.4%
 Delta Air Lines Inc. Equity -3.4%
 Wayfair Inc. Equity -4.7%
 JPMorgan Chase & Co. – Warrants Derivative -2.4%

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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