July 1, 2019

Opportunity Equity Update for Week Ended 6/28/19

Micron Advances On Strong Earnings Results While Lennar Falls on Weaker Outlook

Last week, the Opportunity Equity strategy gained 1.35%, outperforming the S&P 500’s -0.27% loss (Exhibit 1). The strategy ended the week up 15.10% YTD, or 344 basis points behind the S&P 500.

Exhibit 1: Preliminary Performance of Opportunity Equity Strategy Versus S&P 500, Through 6/28/191

Time Period Opportunity Equity S&P 500
Last Week (6/21 – 6/28) 1.35% -0.27%
MTD 11.90% 7.05%
QTD 1.20% 4.30%
YTD 15.10% 18.54%
Inception (annualized since 6/26/00) 6.81% 5.83%

Source: Bloomberg, Miller Value Partners

Micron Technology Inc (MU) reported fiscal Q3 revenue of $4.79B and EPS of $1.05, both topping street estimates of $4.68B and $0.78, respectively driven by improving cloud demand and a better-than-feared Huawei impact. Management guided to fiscal Q4 revenues and EPS of $4.5B and $0.45, while noting FY20 capex will be meaningfully lower year-over-year. Shares closed the week above their 50-day moving average. Bausch Health Companies Inc (BHC) moved above its 100-day moving average after announcing it will pay down an additional $100M of its senior secured term loan via operating cash flow. Teva Pharmaceuticals (TEVA) rose in sympathy with Abbvie’s (ABBV) announced acquisition of Allergan (AGN) in a cash and stock deal valued at $63B. Northland Securities upgraded OneMain Holdings Inc (OMF) from “Market Perform” to “Outperform” with a $40 price target, 17% implied upside. Further, Springleaf Finance Corporation, a wholly-owned subsidiary of OneMain, priced $300M of its 6.125% Senior Notes due March 2024. Flexion Therapeutics (FLXN) moved above its 100-day moving average.

Exhibit 2: Significant Contributors to Performance, 6/21/19 – 6/28/19

Name Type Return
Micron Technology Inc Equity 16.1%
Bausch Health Companies Inc Equity 5.9%
Teva Pharmaceuticals Equity 9.5%
OneMain Holdings Inc Equity 3.2%
Flexion Therapeutics Equity 5.7%

Source: Miller Value Partners

Lennar Corp (LEN) reported fiscal Q2 revenue and EPS of $5.56B and $1.30, topping consensus estimates of $5.10B and $1.13, respectively. Weakness stemmed from a modestly disappointing order and margin outlook for Q3, where management guided to orders of +1%-4% and gross margins of 20.25%-20.5%, missing analyst estimates of +7% and 20.8%, respectively. Shares fell below their 100-day moving average. Brighthouse Financial Inc (BHF) declined on downgrades from Goldman Sachs to “Sell” with a $32 price target (13% implied downside), as well as Credit Suisse to “Underperform” with a $22 price target (40% implied downside). Both analysts have concerns around lower interest rates negatively impacting distributable earnings in the variable annuity business and a potential hit to book value. GTY Govtech Inc (GTYH) announced a cooperative contract with Texas Department of Information Resources (DIR). There was little price changing news on Avon Products (AVP).

Exhibit 3: Significant Detractors from Performance, 6/21/19 – 6/28/19

Name Type Return
Lennar Corp Equity -5.6%
Brighthouse Financial Inc Equity -3.7%
*New Security* Equity -5.6%
GTY Govtech Inc. Equity -10.5%
Avon Products Inc Equity -1.8%

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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