October 7, 2019

Opportunity Equity Update for Week Ended 10/4/19

Endo International Rises Above its 100-Day Moving Average While Bausch Health Falls on Xifaxan Suit

Last week, the Opportunity Equity strategy declined -0.65%, underperforming the S&P 500’s -0.30% fall (Exhibit 1). The strategy ended the week up 11.52% YTD, or 807 basis points behind the S&P 500.

Exhibit 1: Preliminary Performance of Opportunity Equity Strategy Versus S&P 500, Through 10/4/191

Time Period Opportunity Equity S&P 500
Last Week (9/27 – 10/4) -0.65% -0.30%
MTD -1.32% -0.80%
QTD -1.32% -0.80%
YTD 11.52% 19.59%
Inception (annualized since 6/26/00) 6.54% 5.79%

Source: Bloomberg, Miller Value Partners

Endo International (ENDP) rose above its 100-day moving average on reports that the company, among other manufacturers, are looking to settle their opioid cases by participating in Purdue Pharma’s bankruptcy. Lennar Corp (LEN) advanced after reporting Q3 revenue of $5.86B and EPS of $1.59, both topping consensus of $5.48B and $1.32, respectively driven by core homebuilding and better-than-expected deliveries (+7% YoY). Gross margins of 20.4% expanded 30bps sequentially while core operating margins of 12.0% rose 40bps QoQ. Management guided to Q4 EPS of $1.81-$1.94, gross margins of 21.25%-21.50%, and orders of 12,000-12,400 (+15% to +17%). They also guided to FY20 FCF of $2B. Stitch Fix (SFIX) reported fiscal Q4 revenue of $432M (+35% YoY), in-line with consensus while EBITDA of $6.4M fell short of estimates of $8.5M. Active clients of 3.2M implies net additions of 103,000 with growth accelerating 18% YoY. Management guided to FY20 revenue of $1.90B-$1.93B, bracketing consensus, with EBITDA of $10M-$30M, below estimates of $62M driven by aggressive hiring to support new product initiatives. Morgan Stanley maintained their Overweight rating on NXP Semiconductors (NXPI) with a $115 price target, 10% implied upside from current levels, citing a ramp in new technology products like Battery Management Systems could be a key driver of a re-rating opportunity. Additionally, KeyBanc upgraded the stock to Overweight (from Sector Weight) with a $130 price target, 20% implied upside. There was no news on Intrexon (XON).

Exhibit 2: Significant Contributors to Performance, 9/27/19 – 10/4/19

Name Type Return
Endo International plc Equity 19.0%
Lennar Corp Equity 8.7%
Stitch Fix, Inc. Equity 7.5%
Intrexon Corp Equity 6.5%
NXP Semiconductors Equity 3.1%

Source: Miller Value Partners

Bausch Health Companies (BHC) fell after announcing a lawsuit against Sandoz alleging patent infringement following the filing of their Abbreviated New Drug Application for Xifaxan 550 mg tablets. Brighthouse Financial (BHF) fell below its 100 and 200-day moving averages. Credit Suisse maintained their Underperform rating on the stock and lowered their 2019 and 2020 EPS estimates to $8.63 (from $8.65) and $9.98 (from $10.13), respectively citing expectations for higher estimated establishment costs compared to prior estimates. Airlines fell last week after President Trump won approval from the World Trade Organization for $7.5B worth of tariffs on EU-based products, including airline parts. Further, Delta Air Lines (DAL) fell below its 100 and 200-day moving averages as the company issued updated Q3 guidance, tightening their EPS forecast range to $2.20-$2.30 (from $2.10-$2.40). Q3 RASM was also tightened to the midpoint of the original range of ~2.5% (prior 1.5%-3.5%) while FY19 unit costs ex-fuel is now expected to be +2% (prior +1%). United Airlines (UAL) fell below all closely watched technical levels. There was no price-changing news on Tivity Health (TVTY).

Exhibit 3: Significant Detractors from Performance, 9/27/19 – 10/4/19

Name Type Return
Bausch Health Companies Inc. Equity -12.0%
Brighthouse Financial Inc. Equity -8.3%
Delta Air Lines Inc. Equity -7.7%
Tivity Health Inc. Equity -5.7%
United Airlines Holdings Inc. Equity -4.4%

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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