May 4, 2020

Opportunity Equity Update for Week Ended 5/1/20

Homebuilders Gain in Sympathy with DR Horton While Amazon Declines on COVID Expenses

Last week, the Opportunity Equity strategy gained 4.16%, outperforming the S&P 500’s -0.19% decline (Exhibit 1). The strategy ended the week down -28.37% YTD, or 1,654 basis points behind the S&P 500.

Exhibit 1: Preliminary Performance of Opportunity Equity Strategy Versus S&P 500, Through 5/1/201

Time Period Opportunity Equity S&P 500
Last Week (4/24 – 5/1) 4.16% -0.19%
MTD -5.33% -2.80%
QTD 17.33% 9.67%
YTD -28.37% -11.83%
Inception (annualized since 6/26/00) 5.55% 5.46%

Source: Bloomberg, Miller Value Partners

Taylor Morrison Home Corp. (TMHC) and Lennar Corp. (LEN) gained in sympathy with other homebuilders as DR Horton said that weekly net sales order volumes for the past two weeks had increased compared to the preceding four weeks. Lennar crossed above the 50-day moving average. OneMain Holding Inc. (OMF) reported 1Q20 results. The company reported adjusted EPS of $0.33 below consensus of $0.76 with net interest income coming in at $852M ahead of consensus of $840M. Originations for the quarter were $2.6B with management beginning to tighten the credit box as unemployment claims rose. The company reported net charge offs of 6.46% which were down from 7.1% YoY with provision expense of $530M ahead of consensus of $461M. The company has run a number of stress test scenarios estimating that losses could go up to 10% but they would still be able to remain profitable. The company ended the quarter with $4B cash on hand with $3.6B undrawn capacity and $6.1B of unencumbered receivables. Tivity Health Inc. (TVTY) crossed above the 50-day moving average. The company announced that they have partnered with National Association of Area Agencies on Aging (n4a) and the National Association of Nutrition and Aging Services Programs (NANASP) to help meet the increasing demand for healthy, frozen and shelf-stable meals for seniors during the COVID-19 crisis. Endo International (ENDP) crossed above the 50 and 200-day moving average.

Exhibit 2: Significant Contributors to Performance, 4/24/20 – 5/1/20

Name Type Return
Taylor Morrison Home Corp. Equity 24.2%
Lennar Corp. Equity 15.4%
OneMain Holdings Inc. Equity 17.9%
Tivity Health Inc. Equity 27.0%
Endo International Equity 7.5%

Source: Miller Value Partners Inc. (AMZN) declined after reporting 1Q results. The company reported revenues $75.5B ahead of the Street at $73.7B with AWS revenue of $10.2B, 33% growth compared to 34% in 4Q. The company reported operating income of $3.99B below the Street at $4.13B and EPS of $5.01 below the Street at $6.27 on lower other income and higher taxes. The company guided for 2Q revenue of $75-81B with operating income of -$1.5B to $1.5B which implies breakeven profitability at the midpoint includes the ~$4B in additional costs related to COVID-19. Ziopharm Oncology Inc. (ZIOP) crossed below the 50-day moving average. The company announced that it will be presenting data for its controlled IL-12 program both as a monotherapy and in combination with a PD-1 inhibitor for the treatment of recurrent glioblastoma at the American Society of Clinical Oncology (ASCO) Annual Meeting. Alibaba Group Holdings (BABA) crossed below the 50-day moving average. Morningstar raised their price target on Alibaba to $258, upside of 33%. There was minimal news on Stitch Fix Inc. (SFIX) and Precigen Inc. (PGEN).

Exhibit 3: Significant Detractors from Performance, 4/24/20 – 5/1/20

Name Type Return Inc. Equity -5.2%
Ziopharm Oncology Inc. Equity -13.0%
Alibaba Group Holdings Equity -4.8%
Stitch Fix Inc. Equity -5.4%
Precigen Inc. Equity -9.1%

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. 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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