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Jan 17, 2024

Opportunity Equity Weekly Update for 1/5/2024 – 1/12/2024

William Keenan

Crocs Rises on Earnings Pre-Announcement while Delta Declines on Earnings

Last week, the Opportunity Equity Strategy's representative account declined -0.49%, underperforming the S&P 500’s 1.87% rise. (Exhibit 1). The strategy ended the week down -2.51% YTD, 285 basis points behind the S&P 500.

Exhibit 1: Performance of Opportunity Equity Representative Account Net of Fees, Versus S&P 500, Through 1/12/241

Time Period Opportunity Equity Representative Account S&P 500
Last Week (1/5 - 1/12) -0.49% 1.87%
MTD -2.51% 0.34%
QTD -2.51% 0.34%
YTD -2.51% 0.34%
1 Year 18.48% 22.08%
5 Year 7.05% 14.94%
10 Year 7.01% 12.10%
Inception (annualized since 6/26/00) 6.88% 7.21%
Source: Bloomberg, Patient Capital Management.

Crocs, Inc. (CROX) rose above the 50 and 100-day moving averages after management presented at the 2024 ICR conference, raising its fourth quarter and 2023 outlook, and releasing its preliminary 2024 outlook. Management expects revenues to now grow 1% YoY, up from a decline of (4%) to (1%) previously. FY 2023 revenues are expected to grow at 11% YoY, at the high end of previous guidance calling for 10%-11% YoY, with operating margins of 27%. During the quarter, Crocs paid down approximately $277M of debt and repurchased $25M worth of shares. In 2024, revenue growth is expected to be 3%-5% YoY, with 4%-6% in the Crocs brand and flat to slightly up for HEYDUDE. Raymond James raised its price target to $120 from $115 (16% upside). Inc. (AMZN) announced that its Twitch subsidiary would cut 500 staff, or roughly 35% of its total workforce. The Information also reported Amazon would lay off several hundred employees in its Prime Video and Amazon MGM Studios subsidiaries. BMO initiated coverage with a $200 price target (29% upside), while Truist raised its price target to $180 from $176 (16% upside).

Meta Platforms, Inc. (META) introduced new protections to give teens a more age-appropriate experience on Instagram and Facebook, in-line with expert guidance. Teens will automatically be placed into the most restrictive content control settings on Instagram and Facebook, with additional search terms restricted on Instagram. Mizuho raised its price target to $470 from $400 (26% upside), while TD Cowen raised its price target to $415 from $375 (11% upside).

The Information reported that Alphabet Inc. (GOOGL) laid off at least “hundreds of employees” across its hardware divisions, the largest round of cuts since it laid off 6% of its workforce one year ago. TD Cowen raised its price target to $170 from $155 (19% upside), while Argus raised its price target to $170 from $153 (19% upside).

Uber Technologies, Inc. (UBER) issued a statement on the US Department of Labor’s (DOL) final ruling on whether a driver would be considered an independent contractor or employee, highlighting that “the rule does not materially change” the law under which Uber operates. Goldman Sachs raised its price target to $78 from $59 (23% upside), while Wells Fargo raised its price target to $76 from $74 (20% upside).

Exhibit 2: Significant2 Contributors to Opportunity Equity Representative Account Performance, 1/5/24 - 1/12/24

Name Type Net Return
Crocs, Inc. Equity 19.6%, Inc. Equity 6.5%
Meta Platforms, Inc. Equity 6.4%
Alphabet Inc. Equity 5.1%
Uber Technologies, Inc. Equity

Source: Patient Capital Management. See below for additional information.

Coinbase Global, Inc. (COIN) fell through the 50-day moving average despite the United States Securities Exchange Commission (SEC) approving several Bitcoin ETFs, for which Coinbase is acting as issuer or custodian for all but the Fidelity® Wise Origin® Bitcoin Fund (FBTC). Wedbush raised its price target to $180 from $110 (38% upside), while Barclays raised its price target to $110 from $67 (-18% downside).

Delta Air Lines Inc (DAL) fell through the 200-day moving average despite reporting strong 4Q earnings. Adjusted EPS came in at $1.28 vs. consensus estimates of $1.17, while revenues came in ahead of expectations at $13.7B vs. $13.5B expected. The company guided for 1Q24 Revenue to be up 3%-6% y/y, with operating margins of approximately 5%, and EPS of $0.25 to $0.50. For full year 2024, Delta maintained its EPS outlook of $6-$7, with FCF of $3B-$4B, and adjusted debt to EBITDAR of 2x-3x. Delta will tentatively restart flights to Tel-Aviv, Israel in April, and CFO Dan Janki highlighted that pilot hiring should be down 50% YoY in 2024. Wolfe Research raised its price target to $51 from $45 (33% upside).

Citigroup Inc. (C) declined after 4Q 2023 saw mixed results. Net revenue came in at $17.4B vs. $18.7B expected, while EPS came in at $0.84 vs. $0.78 for the street. The company beat on net interest income (NII) coming in at $13.8B vs $13.4B expected but missed on core fees. Despite the mixed results, the Bank maintained its CET1 ratio at 13.3%, below expectations of 13.6%, resulting in Citi repurchasing $500M (0.5%) of shares outstanding in the quarter. Citi issued 2024 guidance with revenue of $80B-$81B, expenses of $53.5B to $53.8B, card net charge offs (NCOs) of 3.75% at the midpoint for branded cards, and 6.0% for retail services. The expense base guidance includes $700M-$1B of non-recurring severance charges, a result of Citi’s simultaneous announcement that it would reduce its headcount by 20,000 by 2026 as part of its global restructuring. Deutsche Bank raised its price target to $54 from $46 (3% upside), while BMO lowered its price target to $57 from $66 (8% upside).

The Wall Street Journal reported that CVS Health Corporation (CVS) plans to close dozens of pharmacies located inside Target stores, as part of the company’s efforts to pare down its retail footprint “based on [its] evaluation of changes in population, consumer buying patterns and future health needs.” Piper Sandler raised its price target to $93 from $85 (21% upside).

Peloton Interactive, Inc. (PTON) declined on limited news.

Exhibit 3: Significant2 Detractors from Opportunity Equity Representative Account Performance, 1/5/24 - 1/12/24

Name Type Net Return
Peloton Interactive, Inc. Equity -13.2%
Coinbase Global, Inc.  Equity -15.1%
Delta Air Lines, Inc.  Equity -4.6%
Citigroup Inc. Equity  -3.1%
CVS Health Corporation  Equity -6.0%
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