August 13, 2018

Opportunity Equity Update for Week Ended 8/10/18

Endo Rises on 2Q Results While Brighthouse Financial Falls on 2Q Earnings

Last week, the Opportunity Equity strategy gained 3.70%, outperforming the S&P 500’s -0.18% loss (Exhibit 1). The strategy ended the week up 20.19% YTD, or 1298 basis points ahead of the S&P 500.

Exhibit 1: Preliminary Performance of Opportunity Equity Strategy Versus S&P 500, Through 8/10/181

Time Period Opportunity Equity S&P 500
Last Week (8/3 – 8/10) 3.70% -0.18%
MTD 4.08% 0.70%
QTD 8.09% 4.58%
YTD 20.19% 7.21%
Inception (annualized since 6/26/00) 8.00% 5.79%

Source: Bloomberg, Miller Value Partners

Endo International PLC (ENDP) rose over the week after announcing strong 2Q results. Revenues came in at $714.7M above consensus of $697.7M driven by strong performance in the branded segments with Xiaflex sales up 27% YoY and EPS coming in at $0.76 far ahead of the $0.54 expected. The company raised full year revenue guidance to $2.75-2.85B from $2.6-2.8B. The company also announced that it had entered into an exclusive licensing agreement with Nevakar Inc. for development of five differentiated sterile injectable products in the US and Canada. Mallinckrodt PLC (MNK) gained over the week after announcing 2Q results which beat expectations. The company announced revenues of $632M ahead of consensus of $621M and EPS of $1.78 beating expectations for $1.48. Acthar revenue came in ahead of expectations at $293M vs. $260M while management reiterated that Acthar would achieve at least $1B in sales this year. The company raised full year net sales growth to +4-7% up from +3-6% and raised adjusted EPS to $6.50-6.90 from $6.00-6.50. CenturyLink Inc. (CTL) climbed over the week after releasing 2Q results. CTL reported 2Q revenue of $5.9B just below the Street at $5.92B with adjusted EBITDA of $2.27B beating consensus of $2.21B leading to adjusted EPS of $0.27 vs. $0.24 expected. The company increased adjusted EBITDA guidance for the year to $9.00-9.15B from $8.75-8.95B and increased FCF expectations to $3.60-3.80B up from $3.15-3.35B. There was minimal news on RH (RH) and Quotient Technology Inc. (QUOT).

Exhibit 2: Significant Contributors to Performance, 8/3/18 – 8/10/18

Name Type Return
Endo International PLC Equity 28.3%
Mallinckrodt PLC Equity 28.7%
CenturyLink Inc. Equity 13.6%
RH Equity 7.2%
Quotient Technology Inc. Equity 11.0%

Source: Miller Value Partners

Brighthouse Financial Inc. (BHF) fell over the week after announcing 2Q results. The company had $1.27 in operating EPS compared to the $1.96 consensus. The miss was due to weaker results in the runoff segment due to lower investment income, higher claims and higher expenses. The company maintained its full year 2018 guidance of adjusted EPS of $8.50-9.00 as well as adjusted ROE of 8%. The company announced a $200M buyback authorization (3.8% of market cap) which was not expected until 2020. Bausch Health Companies Inc. (BHC) declined over the week after announcing strong 2Q results. The company had revenue of $2.13B ahead of consensus of $2.06B and adjusted EBITDA of $868M vs. consensus of $807M. Bausch + Lomb along with Salix performed well while Dermatology and Diversified continued to see pressure. The company reaffirmed its 2018 guidance of revenues at $8.15-8.35 but raised adjusted EBITDA to $3.2-3.35B. The company noted that they met with the FDA to discuss Duobrii CRL and expects to resubmit the NDA within 30 days and anticipates a 6-month review. Genworth Financial Inc. (GNW) crossed below the 50-day moving average. Discovery Inc. (DISCA) crossed below the 50-day moving average after announcing 2Q results. The company reported revenues of $2.85B in-line with the Street and adjusted operating income before depreciation and amortization (OIBDA) of $1.21B vs consensus of $1.20B with adjusted EPS of $0.77 versus $0.86 expected. While top-line results were in-line with guidance, the legacy DISCA business in the US was slower than expected with 0% growth in both advertising and distribution revenue. Alexion Pharmaceuticals (ALXN) crossed below the 100 and 200-day moving average. Stifel placed a hold rating on ALXN with a price target of $130, 9% upside.

 Exhibit 3: Significant Detractors from Performance, 8/3/18 – 8/10/18

Name Type Return
Brighthouse Financial Inc Equity -8.7%
Bausch Health Companies Inc. Equity -4.2%
Genworth Financial Inc. Equity -2.8%
Discovery Inc. Equity -4.0%
Alexion Pharmaceuticals Equity -3.9%

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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