July 16, 2018

Opportunity Equity Update for Week Ended 7/13/18

Amazon Advances in Anticipation of Prime Day While American Airlines Falls on Lower TRASM Guidance

Last week, the Opportunity Equity strategy advanced 1.92%, outperforming the S&P 500’s 1.55% gain (Exhibit 1). The strategy ended the week up 16.60% YTD, or 1,074 basis points ahead of the S&P 500.

Exhibit 1: Preliminary Performance of Opportunity Equity Strategy Versus S&P 500, Through 7/13/181

Time Period Opportunity Equity S&P 500
Last Week (7/6 -7/13) 1.92% 1.55%
MTD 4.86% 3.13%
QTD 4.86% 3.13%
YTD 16.60% 5.86%
Inception (annualized since 6/26/00) 7.86% 5.75%

Source: Bloomberg, Miller Value Partners

Amazon.com Inc (AMZN) rose in anticipation of Amazon Prime Day, which takes place this week and will now extend offers to shoppers at Whole Foods Markets. Last year, it was estimated the event generated $1B in sales and in the process added millions of Prime members. The company also announced a new fulfillment center in Ottawa, marking Amazon’s eighth center in Canada, and which will create over 600-full time jobs. Lastly, AWS announced it is considering selling its own networking switches, devices that help shepherd traffic around networks, and would further integrate the company into the enterprise computing marketplace. RH (RH) bounced back after providing clarification on product sourcing from China, which will be approximately 35% in 2018 and 25%-30% in 2019. Management believes the company can mitigate the impact of the proposed 10% tariff on business and that the overall effect will be immaterial. Mallinckrodt plc (MNK) rose above its 200-day moving average as Wells Fargo raised their price target for the stock 40% from $15 to $21, roughly in-line with current levels. Further, The Economic Times reported Aurobindo Pharmaceuticals is in talks to buy Mallinckrodt’s specialty generics business in the US for $850M-$900M, with an announcement expected later this month. ADT Inc (ADT) rose above its 100-day moving average as Morgan Stanley reiterated their “Overweight” rating with a $15 price target, or 65% upside, citing ADT’s growing core market and stable market share. Goldman Sachs also gave the stock a boost, naming it to its Top 25 ‘Tactical Trades’ Ahead of Earnings Seasons List under potential for upside. There was no news on Intrexon Corp (XON).

Exhibit 2: Significant Contributors to Performance, 7/6/18 – 7/13/18

Name Type Return
Amazon.com Inc Equity 6.0%
RH Equity 5.5%
Mallinckrodt plc Equity 8.7%
ADT Inc Equity 9.2%
Intrexon Corp Equity 5.6%

Source: Miller Value Partners

OneMain Holdings (OMF) fell below its 50-day moving average and appointed Doug Shulman as President & CEO, succeeding Jay Levine who will remain Chairman of the Board. Shulman, who will also be appointed to the Board of Directors, joins OneMain from BNY Mellon, where he served as Global Head of Client Service Delivery. Teva Pharmaceuticals (TEVA) announced the US commercial launch of its generic version of Bausch Health Companies’ (BHC, formerly known as Valeant Pharmaceuticals) Uceris, or budesonide, extended release tablets indicated for the induction of remission in patients with active, mild to moderate ulcerative colitis. American Airlines (AAL) fell after lowering Q2 TRASM to 1%-3% (previously 1.5%-3.5%), citing lower than expected domestic yields, while CASM was guided to 2.5% (previously 3.5%). The company’s IT issue at its PSA Airlines unit in June, which caused the cancellation of roughly 3,000 flights, is expected to cost the company $35M in pre-tax income. Wayfair, Inc (W) declined after being downgraded to “Market Perform” at IFS Securities and traded lower with the retail group on tariff concerns. There was no news on Brighthouse Financial (BHF).

 Exhibit 3: Significant Detractors from Performance, 7/6/18 – 7/13/18

Name Type Return
OneMain Holdings Inc Equity -2.7%
Teva Pharmaceuticals Equity -3.5%
American Airlines Group Inc Equity -2.5%
Brighthouse Financial Inc Equity -2.6%
Wayfair, Inc Equity -2.1%

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.

©2018 Miller Value Partners, LLC

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