July 30, 2018

Opportunity Equity Update for Week Ended 7/27/18

Endo Rose on Deal with Bioprojet SCR While Endurance Fell on Earnings and Guidance

Last week, the Opportunity Equity strategy declined -1.64%, underperforming the S&P 500’s 0.61% gain (Exhibit 1). The strategy ended the week up 15.52% YTD, or 897 basis points ahead of the S&P 500.

Exhibit 1: Preliminary Performance of Opportunity Equity Strategy Versus S&P 500, Through 7/27/181

Time Period Opportunity Equity S&P 500
Last Week (7/20 -7/27) -1.64% 0.61%
MTD 3.89% 3.80%
QTD 3.89% 3.80%
YTD 15.52% 6.55%
Inception (annualized since 6/26/00) 7.79% 5.77%

Source: Bloomberg, Miller Value Partners

Endo International plc (ENDP) rose over the week. The company announced a definitive agreement with Bioprojet SCR to register, commercialize and distribute pitolisant, narcolepsy medication, on an exclusive basis in Canada. The company also began shipping an authorized generic version of Merck’s INVANZ. Delta Air Lines Inc. (DAL) crossed above the 50, 100 and 200-day moving average. The company announced that it had signed a definitive agreement to form a joint-venture with Calgary-based WestJet. American Airlines Group (AAL) announced solid 2Q earnings but disappointing guidance. American announced EPS of $1.63 versus consensus of $1.59 but the company cut its FY18 EPS guidance from $5-6 to $4.50-5.00 due to rising fuel prices. The company lowered its capacity growth outlooks for the year to 2.2% from 2.7% and lowered its 2018 cost per available seat mile excluding fuel (CASM-ex) guidance to 0.5-2.5% growth from 1.0-3.0%. There was minimal news on JPMorgan Chase & Co. (JPM/WS) warrants and Mallinckrodt PLC (MNK).

Exhibit 2: Significant Contributors to Performance, 7/20/18 – 7/27/18

Name Type Return
Endo International PLC Equity 8.4%
JPMorgan Chase & Co – Warrants Derivative 6.9%
Delta Air Lines Inc. Equity 5.5%
Mallinckrodt PLC Equity 5.9%
American Airlines Group Inc. Equity 4.8%

Source: Miller Value Partners

Endurance International Group Holdings (EIGI) fell below the 50, 100 and 200-day moving average after announcing 2Q earnings. The company announced revenues and EBITDA of $287.8M and $85M, respectively versus consensus of $288.6M and $77.2M but maintained full year guidance. Facebook Inc. (FB) crossed below the 50, 100 and 200-day moving average after announcing 2Q results and providing disappointing guidance. The company had revenues and EPS of $13.2B and $1.74, respectively, compared to consensus of $13.3B and $1.71. The company saw engagement of 65.8% below consensus of 66.1% with daily active users (DAUs) growing 2% QoQ and monthly active users (MAUs) growing 11% YoY to 2.234B. The company guided to high-single digit deceleration in revenue growth rates in both 3Q and 4Q while also stating that expenses will grow at a faster rate than revenue growth in 2019 leading operating margins to trend towards the mid-30s compared to their operating margins in the mid-40s now. Pulte Group Inc. (PHM) also fell below the 50, 100 and 200-day moving average after announcing strong 2Q earnings. The company reported EPS of $0.97, above consensus of $0.75.  However, new orders declined 1%, far below the 8% growth expected as the company has focused on pricing over pace. The company raised its 3Q and 4Q gross margin guidance to 24-24.5% and 23.8-24.3%, respectively from 23-23.5% in 3Q previously while also raising full year 2018 operating cash flow guidance to $900M-1.1B from $700-900M previously. Flexion Therapeutics (FLXN) fell below the 50, 100 and 200-day moving average. There was minimal news on Stitch Fix Inc. (SFIX).

 Exhibit 3: Significant Detractors from Performance, 7/20/18 – 7/27/18

Name Type Return
Endurance International Group Holdings Equity -18.2%
Facebook Inc. Equity -16.0%
Pulte Group Inc. Equity -9.6%
Flexion Therapeutics Equity -11.3%
Stitch Fix Inc. Equity -14.2%

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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