April 9, 2018

Opportunity Equity Update for Week Ended 4/6/18

Intrexon crosses the 200-day moving average while RH crosses below the 100-day moving average

Last week, the Opportunity Equity strategy lost -0.51%, outperforming the S&P 500’s -1.35% loss (Exhibit 1). The strategy ended the week down -2.97% YTD, or 87 basis points behind the S&P 500.

Exhibit 1: Preliminary Performance of Opportunity Equity Strategy Versus S&P 500, Through 4/6/181

Time Period Opportunity Equity S&P 500
Last Week (3/29 -4/6) -0.51% -1.35%
MTD -0.51% -1.35%
QTD -0.51% -1.35%
YTD -2.97% -2.10%
Inception (annualized since 6/26/00) 6.87% 5.37%

Source: Bloomberg, Miller Value Partners

Intrexon Corp. (XON) crossed above the 200-day moving average. Flexion Therapeutics (FLXN) was up over the week after announcing that the Centers for Medicare Services (CMS) issued a product specific Q code for Zilretta, which will be effective July 1, 2018. This news provides more confidence that Flexion will receive a J Code from CMS for Zilretta later this year. Lennar Corp. (LEN) crossed above the 50-day moving average after announcing first quarter results. The company reported pretax income of $269M, slightly below consensus of $302M on revenues of $3B vs. consensus of $2.7B. Homebuilding gross margins came in better than expected (21.6% vs. 21%) with net orders growing 30% YoY (8,456 homes vs. 8,140 est.). The company stated that realized synergies from its merger with CAA are expected to exceed management’s original guidance of $100M for 2018 and they believe they can generate $2-$2.5B in FCF this year compared to previous guidance of $1B. Discovery Inc. (DISCA) crossed above the 100 and 200-day moving average as Wells Fargo upgraded the stock to outperform with a price target of $27, upside of 19%. Stitch Fix Inc. (SFIX) crossed above the 50-day moving average.

Exhibit 2: Significant Contributors to Performance, 3/29/18 – 4/6/18

Name Type Return
 Intrexon Corp. Equity 11.6%
 Flexion Therapeutics Equity 6.2%
 Lennar Corp. Equity 4.5%
 Discovery Inc. Equity 5.6%
 Stitch Fix Inc. Equity 8.0%

Source: Miller Value Partners

RH (RH) crossed below the 100-day moving average. Amazon.com Inc. (AMZN) continued to decline over the week as investors continued to focus on rhetoric around its use of USPS and tax collection for third party sellers on AMZN’s platform. Endo Pharmaceuticals Holdings Inc. (ENDP) was downgraded to neutral at Mizuho Securities with a price target of $7, upside of 28%. Delta Air Lines Inc. (DAL) fell below the 50 and 100-day moving average. Delta provided first quarter guidance that largely affirmed its mid-March update. Delta indicated Q1 revenue per available seat mile (RASM) up 5% on the high end of guidance (4%-5%) while EPS ($0.65-$0.75) and pre-tax margin (6.5%-7.5%) were unchanged along with cost per available seat mile (CASM) guided to the high of the range at 4%. American Airlines Group Inc. (AAL) fell below the 100 and 200 day moving average. It was announced that American ordered 47 new Boeing 787 wide body aircraft scheduled to arrive in 2020 and 2023.

Exhibit 3: Significant Detractors from Performance, 3/29/18 – 4/6/18

Name Type Return
 RH Equity -6.7%
 Amazon.com Inc. Equity -2.9%
 Endo Pharmaceuticals Holding Inc. Equity -7.6%
 Delta Air Lines Inc. Equity -3.2%
 American Airlines Group Inc. Equity -3.2%

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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