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Aug 28, 2023

Opportunity Equity Weekly Update for 8/18/2023 – 8/25/2023

William Keenan

Splunk Rises on Earnings while Peloton Falls on Earnings

Last week, the Opportunity Equity Strategy's representative account gained 0.87%, outperforming the S&P 500’s 0.84% rise. (Exhibit 1). The strategy ended the week up 20.23% YTD, 424 basis points ahead of the S&P 500.

Exhibit 1: Performance of Opportunity Equity Representative Account Net of Fees, Versus S&P 500, Through 8/25/231

Time Period Opportunity Equity Representative Account S&P 500
Last Week (8/18 - 8/25) 0.87% 0.84%
MTD -11.17% -3.86%
QTD -4.12% -0.77%
YTD 20.23% 15.99%
1 Year -1.31% 6.73%
5 Year 0.47% 10.82%
10 Year 7.85% 12.34%
Inception (annualized since 6/26/00) 6.43% 6.92%
Source: Bloomberg, Patient Capital Management.

Splunk Inc. (SPLK) rose above the 50 and 100-day moving averages after reporting strong 2Q FY24 results and raising full year guidance. Revenue came in ahead of expectations at $911M vs $887M expected, with total Annual Recurring Revenue (ARR) growing 17% y/y ahead of consensus of 14%. The company reported strong EBIT with margins hitting 17% vs expectations at 11% leading to an adjusted EPS beat at $0.71 vs consensus at $0.45. The company raised full year total ARR guidance to $4.150B (+13% y/y) up from at least $4.125B in the prior quarter. The company raised full year revenue guidance to $3.938B at the midpoint from $3.9B, full year operating margins to 21%-21.5% from 18%-18.5%, and FCF of at least $855M ($5.14 per share, 4% FCF yield) up from $805M. Bank of America raised its price target to $150 from $130 (29% upside), while Wedbush raised its price target to $105 from $86 (-9% downside).

Mattel, Inc. (MAT) rose after launching several NFL related products, including a Fisher-Price Little People Collector series featuring all 32 teams, officially licensed NFL cheer uniforms for their premier doll brand, American Girl, and a UNO deck which includes a new “Ice the Kicker” rule. The company also announced its brand new animated series featuring Barbie will premiere September 14th on Netflix.

UBS Group AG (UBS) rose throughout the week, reaching a new 52-week high in anticipation of the company’s first earnings announcement since their acquisition of Credit Suisse.

Citigroup Inc. cut their price target on Farfetch Limited (FTCH) to $3.00 from $4.30 (3% upside), maintaining their sell rating for the stock.

Precigen, Inc. (PGEN) rose on limited news.

Exhibit 2: Significant2 Contributors to Opportunity Equity Representative Account Performance, 8/18/23 - 8/25/23

Name Type Net Return
Splunk Inc. Equity 18.9%
Mattel, Inc. Equity 5.3%
UBS Group AG Equity 4.9%
Farfetch Limited Equity 12.1%
Precigen, Inc. Equity 7.6%
Source: Patient Capital Management. See below for additional information.

Peloton Interactive, Inc. (PTON) fell after announcing mixed 4Q FY2023 results and disappointing guidance. The company reported in-line revenue of $642M and adjusted EBITDA of -$35M short of consensus at -$20M. 1Q FY2024 revenue guidance of $580M-$600M came in short of consensus at $648M, while EBITDA guidance ($20M)-($10M), missed vs consensus expectations of $6M. In his letter to shareholders, CEO Barry McCarthy reaffirmed his goals for the business outlined last February, most notably a return to y/y revenue growth, sustained positive adjusted EBITDA, and free cash flow breakeven. McCarthy also highlighted that since relaunching the Peloton mobile application on May 23rd, it has been downloaded over 900k times, 600k of which were non-peloton members. Bernstein lowered its price target to $13 from $20 (123% upside), while JP Morgan lowered its price target to $12 from $14 (106% upside).

Ovintiv Inc. (OVV) followed oil prices lower throughout the week.

Wells Fargo cut their price target on Citigroup Inc. (C) to $55.00 from $60.00. (33% upside), maintaining their overweight rating on the stock.

Capital One Financial Corporation (COF) fell through the 100 and 200-day moving averages on limited news.

Exhibit 3: Significant2 Detractors from Opportunity Equity Representative Account Performance, 8/18/23 - 8/25/23

Name Type Net Return
Peloton Interactive, Inc. Equity -9.3%
New Security* Equity -5.4%
Citigroup Inc. Equity -2.4%
Capital One Financial Corporation Equity -4.0%
Ovintiv Inc. Equity -3.3%
Source: Patient Capital Management. See below for additional information.

As of prior week's market close unless otherwise stated.

1The performance figures for the representative Opportunity Equity account reflect the deduction investment management fees and certain other expenses. Returns greater than 1 year are annualized.

Patient Capital Management, LLC completed its acquisition of the Opportunity Equity Strategy from Miller Value Partners, LLC on May 26, 2023. Patient Capital Management served as the investment adviser to the Opportunity Equity Strategy for the majority of the week referenced herein. Additionally, prior versions of this weekly blog posting refer to Miller Value Partners as investment adviser to the Opportunity Equity Strategy.

For additional information about Opportunity Equity Strategy performance, please click on the Opportunity Equity Strategy Composite Performance Disclosure. Past performance is no guarantee of future results.

2Significant Contributors and Detractors are based on holdings that had the greatest effect on representative account performance for the week. Holdings that have been in the portfolio since the end of the most recent calendar quarter are identified by name. The net return shown above for each individual security represents the change in market price of the security during the week, according to a third-party pricing service, or for the partial period held in the portfolio during the week.  Net returns also include any purchases or sales that were made during the week. 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 Patient Capital Management disclaims any responsibility to update such views. There is no guarantee that market trends discussed herein will continue. 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. References to specific securities are for illustrative purposes only. Portfolio composition is shown as of a point in time and is subject to change without notice. Content may not be reprinted, republished or used in any manner without written consent from Patient Capital Management. 

©2023 Patient Capital Management, LLC