September 30, 2019

Opportunity Equity Update for Week Ended 9/27/19

RH Gains on Price Target Increase While Micron Declines on Disappointing Guidance

Last week, the Opportunity Equity strategy lost -3.38%, underperforming the S&P 500’s -0.98% decline (Exhibit 1). The strategy ended the week up 12.24% YTD, or 770 basis points behind the S&P 500.

Exhibit 1: Preliminary Performance of Opportunity Equity Strategy Versus S&P 500, Through 9/27/191

Time Period Opportunity Equity S&P 500
Last Week (9/20 – 9/27) -3.38% -0.98%
MTD 3.01% 1.35%
QTD -2.48% 1.18%
YTD 12.24% 19.94%
Inception (annualized since 6/26/00) 6.58% 5.81%

Source: Bloomberg, Miller Value Partners

RH (RH) gained after Wedbush raised their price target to $185, 8% upside, from $170 previously. Loop Capital raised their price target on NXP Semiconductors (NXPI) to $130 from $118, 22% upside, citing expectations for a stronger 2020 environment. Discovery Inc. (DISCA) gained after announcing Food Network Kitchen, an interactive direct-to-consumer service offering both live and on-demand cooking lessons for $6.99/month as well as the ability to purchase ingredients and equipment. Lennar Corp (LEN) was upgraded at Raymond James with a price target of $61, upside of 11%. August new home sales rose 7.1% sequentially (18% YoY) to 713k ahead of consensus of 659k. ADT Inc. (ADT) completed its previously announced offering of an additional $600M aggregate principal amount of 5.75% senior notes due 2026. The amount will be used to refinance $3.414B of the term loan due 2022 as well as repurchase or redeem the outstanding $300M aggregate principal amount of 5.25% senior notes due 2020.

Exhibit 2: Significant Contributors to Performance, 9/20/19 – 9/27/19

Name Type Return
RH Equity 1.3%
NXP Semiconductors Equity 1.7%
Discovery Inc. Equity 2.2%
Lennar Corp. Equity 1.2%
ADT Inc. Equity 1.0%

Source: Miller Value Partners

Micron Technology (MU) fell below the 50-day moving average after reporting 4Q results which beat expectations but provided disappointing guidance. The company reported revenues of $4.9B ahead of the Street at $4.6B with EPS of $0.56 vs $0.51 expected. The company guided for 1Q Revenue of $4.8-5.2B ahead of expectations of $4.8B but guided for EPS of $0.46 missing consensus of $0.52 due to lower gross margin at 26.5% vs the Street at 29.6%. For CY20, the company expects NAND industry bit demand in the high 20s to low 30s with supply growing below demand and DRAM industry bit demand in the high-teens to 20% growing above supply in the mid-teens. Intrexon Corp. (XON) declined over the week after AquaBounty Technologies was downgraded by National Securities because a US Senator has put forward a measure to delay the sale of genetically modified salmon in the US. Next Green Wave Holdings Inc. also announced it completed the installation and activation of its research and innovation laboratory under license from Intrexon. Under the agreement, these milestones will advance Intrexon’s Botticelli next generation plant (non-GMO) propagation platform and begin the rapid optimization and production of Next Green Wave’s proprietary cannabis cultivars.  Facebook Inc. (FB) crossed below the 50 and 100-day moving average. The company announced the purchase of CTRL-Labs Corp, which specializes in the development of non-invasive neural interface technology. Bausch Health Companies Inc. (BHC) crossed below the 50-day. There was minimal news on Flexion Therapeutics (FLXN).

Exhibit 3: Significant Detractors from Performance, 9/20/19 – 9/27/19

Name Type Return
Micron Technology Inc. Equity -12.1%
Intrexon Corp Equity -12.7%
Facebook Inc. Equity -6.8%
Flexion Therapeutics Equity -7.1%
Bausch Health Companies Inc. Equity -5.1%

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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