May 11, 2020

Opportunity Equity Update for Week Ended 5/8/20

Farfetch Gains Following Capital Raise While Quotient Falls on 1Q Results

Last week, the Opportunity Equity strategy gained 7.05%, outperforming the S&P 500’s 3.57% rise (Exhibit 1). The strategy ended the week down -23.32% YTD, or 1,463 basis points behind the S&P 500.

Exhibit 1: Preliminary Performance of Opportunity Equity Strategy Versus S&P 500, Through 5/8/201

Time Period Opportunity Equity S&P 500
Last Week (5/1 – 5/8) 7.05% 3.57%
MTD 1.34% 0.67%
QTD 25.60% 13.58%
YTD -23.32% -8.68%
Inception (annualized since 6/26/00) 5.91% 5.64%

Source: Bloomberg, Miller Value Partners

Farfetch Ltd. (FTCH) gained over the week as analysts published positive reports on the company’s cash position which sits at $820M after issuing $400M convertible bonds the previous week. Bank of American published a positive note with a price target of $20, upside of 23%. Medifast Inc. (MED) crossed above the 100 and 200-day moving average after reporting 1Q results. The company reported revenue of $178.5M beating consensus of $166M with EPS of $1.93 ahead of the $1.32 expected. The company had their highest coach count ever of 32,600 but average revenue per coach was still down to $5,333 compared to $5,817 seen 1Q last year but was up 2% QoQ with 4Q revenue per coach of $5,229. They noted that 85% of revenue is reoccurring with 80% of expenses being variable but the company still pulled full year guidance due to uncertainty around COVID. The company maintained their dividend at $1.13, 4.7% yield. Peloton Interactive Inc. (PTON) gained after announcing FY 3Q results which beat expectations. The company reported revenue of $524.6M ahead of $488.5M expected and had positive adjusted EBITDA of $23.5M ahead of consensus of -$26M. The company raised full year guidance to revenue of $1.72-1.74B with adjusted EBITDA of $30-40M (above the original -$95M to -$115M) with 1.04-1.06M connected fitness subscribers expected ahead of the 925M consensus was expecting. Teva Pharmaceuticals (TEVA) crossed above the 100-day moving average following their 1Q earnings results. The company reported 1Q revenue of $4.36B above the Street at $4.15B with EPS of $0.76 vs consensus of $0.59. The beat was driven by the top-line with the company seeing greater demand for generics and respiratory products. The company reaffirmed full year guidance with revenue expected to be $16.6-17B and EBITDA of $4.5-4.9B leading to EPS of $2.30-2.55. Taylor Morrison Home Corp. (TMHC) crossed above the 50-day moving average after reporting 1Q results. The company reported 1Q orders of 3,466 slightly below consensus of 3,584 with homebuilding revenue of $1.265B ahead of consensus of $1.196B and EPS of $0.57 vs. $0.44 expected. The company noted a drop-off in the last 10 days of March but noted weekly improvement in both gross and net sales in April aided by the implementation of virtual alternatives to meetings/showings.

Exhibit 2: Significant Contributors to Performance, 5/1/20 – 5/8/20

Name Type Return
Farfetch Ltd Equity 27.8%
Medifast Inc. Equity 30.5%
Peloton Interactive Inc. Equity 34.2%
Teva Pharmaceuticals Equity 11.3%
Taylor Morrison Home Corp. Equity 15.0%

Source: Miller Value Partners

Quotient Technology Inc. (QUOT) declined over the week after reporting 1Q results. The company reported revenue of $98.8M below the Street at $106M with EBITDA of $5.1M ahead of the Street at $2.5M. The company began to experience headwinds in mid-March as CPG advertisers paused their spend with the company noting that they expect the trough to be in 2Q. Quotient lowered full year guidance due to decreased visibility and lower CPG ad spend with revenue of $430-470M (down from $485-495M previously) and EBITDA of $40-55M (below $58-62M original guide). The company also lowered 2Q guidance to revenue of $80-90 vs Street at $112M and EBITDA of $0-3M below the Street at $12.6M. Endo International (ENDP) fell below the 200-day moving average. The company reported 1Q revenue of $820M ahead of consensus of $726M with EBITDA of $421M vs the Street at $319M, leading to EPS of $0.95 ahead of expectations of $0.55. The company withdrew full year guidance due to uncertainties around COVID and they have pushed back the launch of CCH for cellulite to 1Q21 from 4Q20 originally. The company expects revenue decline in the low 20’s percentage range for 2Q compared to 1Q with adjusted operating expenses at 25% of sales and gross margins of 60%. Genworth Financial Inc. (GNW) declined over the week as investors grew concerned on the potential closing of the acquisition by China Oceanwide. The company noted on their 1Q call that China Oceanwide’s financing plans were “progressing well” but also noted that China Oceanwide was having discussions with third parties beyond their primary lender creating concern that the primary lender might not follow through on its commitment. Management noted that they expect the deal to close by June 30th but noted that the buyer had allowed Genworth to explore alternatives it could pursue if the deal fell through. The company reported 1Q revenue of $1.84B below consensus of $1.99B with EPS of $0.07 below consensus of $0.27. Delta Air Lines (DAL) and United Airlines Holdings Inc. (UAL) along with other airlines declined over the week after Warren Buffett disclosed that he had exited all of his airline positions saying the industry’s prospects had been upended by the coronavirus.

Exhibit 3: Significant Detractors from Performance, 5/1/20 – 5/8/20

Name Type Return
Quotient Technology Inc. Equity -10.3%
Endo International Equity -7.8%
Genworth Financial Inc. Equity -9.1%
Delta Air Lines Inc. Equity -5.8%
United Airlines Holding Inc. Equity -4.5%

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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