May 6, 2019

Opportunity Equity Update for Week Ended 5/3/19

NXP Semiconductors Advances on Strong Earnings While Avon Declines on Mixed Results

Last week, the Opportunity Equity strategy gained 0.89%, outperforming the S&P 500’s 0.22% rise (Exhibit 1). The strategy ended the week up 21.54% YTD, or 328 basis points ahead of the S&P 500.

Exhibit 1: Preliminary Performance of Opportunity Equity Strategy Versus S&P 500, Through 5/3/191

Time Period Opportunity Equity S&P 500
Last Week (4/26 – 5/3) 0.89% 0.22%
MTD 1.10% 0.01%
QTD 6.86% 4.06%
YTD 21.54% 18.26%
Inception (annualized since 6/26/00) 7.18% 5.86%

Source: Bloomberg, Miller Value Partners

NXP Semiconductors NV (NXPI) reported Q1 revenues of $2.1B, in-line with consensus, while non-GAAP EPS of $1.66 was nicely ahead of expectations of $1.55. Q2 revenue guidance of $2.2B is 2% above consensus and implies a 5% sequential increase, while gross margin guidance of 53.3% and operating margin guidance of 28.0% are 60bps and 130bps, respectively higher than Q1. Canaccord reiterated their Buy rating and $17 price target on Endo International (ENDP), 105% implied upside, citing expectations for improving top and bottom line performance throughout the year. The analyst remains positive on the company’s core business and sees upside in generics once the opioid impact clears. ADT (ADT) moved above its 50-day moving average. Goldman Sachs maintained their Buy rating on the stock with a $13 price target, 86% implied upside, citing the company’s recent expansion of its commercial footprint should strengthen free cash flow generation. American Airlines (AAL) moved above its 50 and 100-day moving averages. There was no news on Brighthouse Financial (BHF).

Exhibit 2: Significant Contributors to Performance, 4/26/19 – 5/3/19

Name Type Return
NXP Semiconductors NV Equity 9.2%
Endo International plc Equity 10.4%
ADT Inc Equity 6.6%
American Airlines Group Inc Equity 5.2%
Brighthouse Financial Inc Equity 3.1%

Source: Miller Value Partners

Avon Products (AVP) reported Q1 revenues of $1.19B, just falling short of consensus of $1.24B, but beating on EBITDA and EPS of $80.9M and $0.03, respectively. Local currency sales were -3% year-over-year, while gross margins of 56.8% were down 160bps. Operating margins of 4.5%, however, saw 50bps of improvement on the backs of cost savings. Shares closed the week below their 50-day moving average. Mallinckrodt (MNK) fell on negative headlines surrounding an on-going case relating to the mispricing and misconduct of Acthar. Eventbrite (EB) reported Q1 revenues of $81.3M, falling short of consensus of $86.1M, while EBITDA of $5M also came in below consensus of $6.7M. Paid ticket growth fell to +14.6% year-over-year (from 17.6% in Q4) and net revenue per ticket of $3.01 fell 5% year-over-year. Management guided to Q2 revenue of $74-$78M with EBITDA of -$4M to flat, both below consensus of $82.4M and $8.1M, respectively. Discovery (DISCA) fell despite posting solid results. Revenue of $2.7B was in-line, while EBITDA of $1.16B and EPS of $0.87 came in ahead of consensus of $1.08B and $0.79, respectively. Management initiated a $1B share repurchase authorization, which equates to 5% of the current equity market cap. Management’s Q2 outlook includes expectations for 3-5% growth in US advertising revenues, 4% growth in US distribution revenue, and mid-single digit growth in international advertising. OneMain Holdings (OMF) also fell despite a strong print, where EPS of $1.37 beat consensus of $1.32, driven by strong net interest income and lower-than-expected operating expenses. Management maintained guidance for 2019, where they see ending net receivables growth of 5-10%, stable yields, net charge off under 6.5%, and adjusted tangible leverage of ~6x.

Exhibit 3: Significant Detractors from Performance, 4/26/19 – 5/3/19

Name Type Return
Avon Products Equity -10.3%
Mallinckrodt plc Equity -11.9%
Eventbrite Inc Equity -17.6%
Discovery Inc Equity -6.9%
OneMain Holdings Equity -1.6%

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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