May 20, 2019

Opportunity Equity Update for Week Ended 5/17/19

Housing Gains on April Housing Starts While Generics Decline on Price Fixing Lawsuit

Last week, the Opportunity Equity strategy lost 4.99%, underperforming the S&P 500’s -0.69% decline (Exhibit 1). The strategy ended the week up 12.16% YTD, or 282 basis points behind the S&P 500.

Exhibit 1: Preliminary Performance of Opportunity Equity Strategy Versus S&P 500, Through 5/17/191

Time Period Opportunity Equity S&P 500
Last Week (5/10 – 5/17) -4.99% -0.69%
MTD -6.71% -2.76%
QTD -1.39% 1.17%
YTD 12.16% 14.98%
Inception (annualized since 6/26/00) 6.71% 5.69%

Source: Bloomberg, Miller Value Partners

Pulte Group Inc. (PHM) and Lennar Corp. (LEN) increased over the week after April total housing starts rose 5.7% sequentially to 1,235k with building permits rising 0.6% sequentially to 1,296k. Pulte also announced an additional $500M in share repurchase authorization and began a $300M cash debt tender. Intrexon Corp. (XON) gained over the week as CEO, RJ Kirk, purchased $5.5m of shares. There was minimal news on Quotient Technology Inc. (QUOT).

Exhibit 2: Significant Contributors to Performance, 5/10/19 – 5/17/19

Name Type Return
Pulte Group Inc. Equity 3.0%
Lennar Corp. Equity 2.5%
Intrexon Corp. Equity 6.9%
Quotient Technology Inc. Equity 0.9%
Cash Equity 0.0%

Source: Miller Value Partners

Teva Pharmaceuticals (TEVA) and Endo International (ENDP) declined after another suit was filed against 20 generic drug companies (including TEVA and ENDP) claiming drug price fixing. The suit was brought by the attorneys general of 44 States and is more expansive than the suit filed in 2016. The suit alleges that Teva significantly raised prices on ~112 generic drugs and colluded with competitors on at least 86 of them. Endo’s Par allegedly colluded with Teva regarding five generics. Baidu Inc. (BIDU) declined over the week after announcing 1Q results that were inline but disappointed on guidance. The company reported revenue of Rmb24.12b versus Rmb24.27b leading to non-GAAP net profit of Rmb967m beating consensus of Rmb896m. The company guided for 2Q revenue of Rmb25.1-26.6b below consensus of Rmb29.3b with iQiyi revenue guide of Rmb6.91-7.29b below the Street at Rmb7.55b noting challenges in the advertising business. The company also announced a new US$1bn share repurchase program. RH (RH) declined over the week as the trade war with China escalated with China retaliating with additional tariffs on Monday. Gordan Haskett downgraded RH from Hold to Reduce with a price target of $88, -7% downside. OneMain Holdings (OMF) crossed below the 50-day moving average. The name was downgraded by Wedbush to neutral from outperform with a price target of $35, 9% upside.

Exhibit 3: Significant Detractors from Performance, 5/10/19 – 5/17/19

Name Type Return
Teva Pharmaceuticals Equity -19.0%
Endo International Equity -19.1%
Baidu Inc. Equity -18.1%
RH Equity -8.4%
OneMain Holdings Equity -5.8%

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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