Royalty Pharma Rises on Corporate Restructure while Alibaba Follows the Hang Seng Lower
Last week, the Opportunity Equity Strategy’s representative account fell -0.60%, outperforming the S&P 500’s -1.91% fall. (Exhibit 1). The strategy ended the week up 1.11% YTD, 200 basis points ahead of the S&P 500.Exhibit 1: Performance of Opportunity Equity Representative Account Net of Fees, Versus S&P 500, Through 1/10/251
Time Period | Opportunity Equity Representative Account | S&P 500 |
Last Week (1/3 - 1/10) | -0.60% | -1.91% |
MTD | 1.11% | -0.89% |
QTD | 1.11% | -0.89% |
YTD | 1.11% | -0.89% |
1 Year | 28.76% | 23.51% |
5 Year | 9.27% | 14.06% |
10 Year | 9.25% | 13.07% |
Inception (annualized since 6/26/00) | 7.79% | 7.83% |
Source: Bloomberg, Patient Capital Management.
Royalty Pharma plc (RPRX) jumped through the 50-day, 100-day, and 200-day moving averages after announcing they will be buying their external manager, simplifying the company’s corporate structure. Royalty Pharma also announced an additional $3B share repurchase program (17% of the current market cap) and expect $2B to be completed by the end of 2025 (11% of the current market cap). Jefferies reiterated United Airlines Holdings, Inc. (UAL) as their favorite airline story and increased their price target from $95 to $132 (23% upside). Jefferies believes management’s increased rationality over cost controls and capital expenditures could drive cumulative free cash flow of $6B between 2025 – 2027. They expect United will deploy $1B annually on share repurchases (~3% of the current market cap).
Delta Air Lines, Inc. (DAL) rose through the 50-day moving average and reached a new 52-week high after posting revenue of $14.4B vs. $14.2B expected and adjusted EPS of $1.85 vs. $1.76 expected. The company laid out 1Q25 revenue growth guidance of 7% to 9% vs. 5.8% expected. For FY25, the company is guiding for free cash flow generation above $4B and adjusted EPS guidance greater than $7.35 (+27% y/y). Seaport increased their price target from $87 to $90 (34% upside).
CVS Health Corp (CVS) rose after announcing all commercial prescriptions dispensed through a CVS pharmacy will run through the company’s CostVantage reimbursement model. Cowen believes this could alleviate more than half of the company’s $1B headwind in annual reimbursements, potentially generating an additional $0.35 in adjusted EPS for FY 25. Cowen maintained their $80 price target (67% upside).
Mattel, Inc. (MAT) rose through the 200-day moving average on limited news.
Exhibit 2: Significant2 Contributors to Opportunity Equity Representative Account Performance, 1/3/25 - 1/10/25
Name | Type | Net Return |
Royalty Pharma plc | Equity | 14.1% |
United Airlines Holdings, Inc. | Equity | 12.0% |
Delta Air Lines, Inc. | Equity | 13.5% |
CVS Health Corp | Equity | 4.9% |
Mattel, Inc. | Equity | 4.1% |
Source: Patient Capital Management. See below for additional information.
Nvidia Corp (NVDA) fell through the 50-day moving average. Jensen Huang, CEO of Nvidia, was extremely bullish on the company’s progress and potential at the annual Consumer Electronics Show in Las Vegas. Jensen stated the company’s latest Blackwell chips are in full cycle and announced Toyota’s plans to use Nvidia’s operating systems in their next generation vehicles. Jensen reiterated his belief that AI is still scaling, not slowing.
Dave & Buster's Entertainment, Inc. (PLAY) fell on limited news.
Alibaba Group Holding Ltd (BABA) fell through the 200-day average, following the Hang Seng’s -3.5% move lower. Jefferies increased their price target from $143 to $144 (79% upside). They believe the company is the clear market leader in cloud computing and has significant potential to penetrate the commerce market in lower tier cities.
Seadrill Limited (SDRL) fell despite Brent’s 4.25% move higher.
Citi lowered their price target on IAC Inc. (IAC) from $60 to $56 (36% upside) and maintained their buy rating.
Exhibit 3: Significant2 Detractors from Opportunity Equity Representative Account Performance, 1/3/25 - 1/10/25
Name | Type | Net Return |
Nvidia Corp | Equity | -5.9% |
Dave & Buster's Entertainment, Inc. | Equity | -6.6% |
Alibaba Group Holding Ltd | Equity | -5.9% |
Seadrill Limited | Equity | -5.4% |
IAC Inc. | Equity | -4.8% |
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.
©2024 Patient Capital Management, LLC
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