May 7, 2018

Opportunity Equity Update for Week Ended 5/4/18

Pandora Climbs on Earnings While Mallinckrodt Falls on Rejection of Stannsoporfin Approval

Last week, the Opportunity Equity strategy gained 0.73%, outperforming the S&P 500’s -0.21% decline (Exhibit 1). The strategy ended the week up 0.93% YTD, or 70 basis points ahead of the S&P 500.

Exhibit 1: Preliminary Performance of Opportunity Equity Strategy Versus S&P 500, Through 5/4/181

Time Period Opportunity Equity S&P 500
Last Week (4/27 -5/4) 0.73% -0.21%
MTD 2.31% 0.61%
QTD 3.48% 1.00%
YTD 0.93% 0.23%
Inception (annualized since 6/26/00) 7.08% 5.49%

Source: Bloomberg, Miller Value Partners

Pandora Media Inc. (P) crossed above the 200-day moving average after announcing first quarter results which beat expectations on revenue and EBITDA. The company reported Q1 revenue of $319M above consensus of $304.3M with adjusted EBITDA of -$73.3M vs. expectations of -$90.3M. The company added 140k subscribers ending the quarter with 5.63m subscribers while average users were down 6% YoY with 72.3M and listening hours were down 5% YoY at 4,960M.  Management noted that March was the first month in the last 18 months that the company reached a positive YoY comp in recapturing lapsed listeners. Management guided for 2Q18 revenue of $360-375M and adjusted EBTIDA loss of -$45M to -$30M compared to consensus of $374M and -$30M, respectively. Wayfair Inc. (W) crossed above the 50, 100 and 200-day moving average after releasing first quarter results. The company had revenues of $1.404B vs. consensus of $1.36B and adjusted EBITDA of -$50M vs expectations for -$52.4M. The company added 805k active customers during the quarter bringing the total to 11.795M (33% YoY growth). The company provided guidance for 2Q with total net revenues of $1.558B-$1.592B but with 2Q adjusted EBITDA of -$37M to -$33M vs. consensus of -$15M. Wayday was their largest sales day ever. Endurance International Group Holdings (EIGI) crossed above the 50, 100 and 200-day moving average after reporting first quarter results with revenue in-line with expectations and EBITDA slightly better. The company had first quarter GAAP revenue of $291.4M vs. consensus of $290.8M and adjusted EBITDA of $86.3M vs. expectations of $76M and GAAP EPS of -$0.05 vs. consensus of -$0.12. The company saw a net decline of 40k subscribers in the quarter ending with 5.011M subs.  Management reiterated FY18 guidance for adjusted EBITDA of $310M to $330M with GAAP revenue of $1.140B to $1.160B. OneMain Holdings Inc. (OMF) gained over the week after reporting strong first quarter results. The company reported core EPS of $1.18 ahead of consensus at $1.12 on net revenues of $812M vs. expectations of $815M. Originations were up 40% YoY to $2.54B, ending net finance receivables were $14.9B, up 13% YoY and net insurance inforce was $679M above consensus of $672M. Management reiterated 2018 guidance with net receivables growth of 5-10% and net charge offs under 7%. There was minimal news on RH (RH).

Exhibit 2: Significant Contributors to Performance, 4/27/18 – 5/4/18

Name Type Return
Pandora Media Inc. Equity 26.0%
Wayfair Inc. Equity 20.3%
Endurance International Group Holdings Equity 17.6%
RH Equity 7.5%
OneMain Holdings Inc. Equity 7.0%

Source: Miller Value Partners

Mallinckrodt (MNK) was down over the week after the FDA’s Joint Advisory Committee voted against approval of stannsoporfin for the treatment of newborns at risk of developing severe jaundice. The Committee indicated that the risk-benefit profile of stannsoporfin does not support approval. Management had expected approval in late 2018. Allergan (AGN) fell below the 50-day moving average after announcing first quarter results despite a solid beat and increasing full year guidance. The company reported total revenues of $3.67B compared to expectations of $3.60B leading to EPS of $3.74 vs. $3.35 consensus driven by Aesthetics and international. The company raised 2018 sales and EPS guidance to sales of $15.15-15.35B up from $15-15.3B previously and EPS of $15.65-16.25 up from $15.25-16.00 previously. The market was disappointed as it focused on the company’s strategic review that seems unlikely to unlock a lot of value. The company said it was focused on evaluating five main options (aggressive share repurchase, divestitures, splitting the company, acquisitions/mergers, and status quo). The company also recorded an impairment charge of $522M for the termination of the VTP-43742 program for psoriasis due to safety signals observed in Phase II. There was minimal news on Intrexon Corp. (XON), Foot Locker Inc. (FL) and Endo Pharmaceuticals Holdings Inc. (ENDP).

 Exhibit 3: Significant Detractors from Performance, 4/27/18 – 5/4/18

Name Type Return
Mallinckrodt Equity -11.8%
Intrexon Corp. Equity -4.6%
Allergan Equity -7.9%
Foot Locker Inc. Equity -6.2%
Endo Pharmaceuticals Holdings Inc. Equity -6.7%

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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