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Jan 24, 2023

Opportunity Equity Update for Week Ended 1/20/23

William Keenan

Google Rises on Headcount Reduction While United Falls Despite Strong Earnings and Outlook

Last week, the Opportunity Equity Strategy's representative account gained 0.58%, outperforming the S&P 500’s -0.65% decline. (Exhibit 1). The strategy ended the week up 16.44% YTD, 1,289 basis points ahead of the S&P 500.

Exhibit 1: Performance of Opportunity Equity Representative Account Net of Fees, Versus S&P 500, Through 1/20/231

Time Period Opportunity Equity Representative Account S&P 500
Last Week (1/13 - 1/20) 0.58% 0.58%
MTD 16.44% 3.55%
QTD 16.44% 3.55%
YTD 16.44% 3.55%
1 Year -21.86% -9.90%
5 Year 2.64% 9.08%
10 Year 10.53% 12.48%
Inception (annualized since 6/26/00) 6.46% 6.57%

Source: Bloomberg, Miller Value Partners. Visit the Strategy page for Opportunity Equity performance through the most current month end period.

Expedia Group, Inc. (EXPE) rose above the 200-day moving average. Jefferies’s January “Big Data” piece highlighted that OTA web traffic by customer was up 34% y/y, and 13% above 2019 levels, while global airline traffic is up 37% y/y, and 20% above 2019 levels. Bernstein highlighted that a brand-by-brand analysis shows that market share losses have been entirely in “sub brands” (Hotwire, ebookers, Orbitz etc.) and core brands VRBO and are gaining share.

Farfetch Limited (FTCH) rose above the 200-day moving average. The company announced that Elizabeth von der Goltz will join as Chief Fashion and Merchandising Officer and CEO of Browns, while Sindhura Sarikonda was appointed President, Farfetch Americas, and Stephanie Simon was appointed Vice President of Community and Web3. Separately, Chief Brand Officer, Holli Rogers, and Chief Growth Officer, Martin Avetisyan, will be leaving the company to pursue other opportunities. UBS lowered its price targeted to $6 from $11 (-5% downside), while Morgan Stanley lowered its price target to $20 from $22 (218% upside).

OneMain Holdings, Inc. (OMF) rose after the company reported December trust data that showed a sequential decrease in both net charge-offs and delinquencies. Net charge-offs fell -11bps M/M to 4.04%, while delinquencies of 2.01% fell -14bps sequentially, primarily reflecting a -19bp decrease in early-stage delinquencies and a -6bp decrease in late-stage delinquencies. The data implies a FY22 NCO rate of 6.1%, in-line with management’s guidance and at the low-end of the prior 6.1%-6.5% range. On Friday, consumer lending competitor Ally Financial also reported earnings and issued guidance that exceeded expectations.

Coinbase Global, Inc. (COIN) followed cryptocurrency prices higher throughout the week. JP Morgan raised its price target to $60 from $53 (9% upside).

Alphabet Inc. (GOOGL) rose above the 50 and 100-day moving averages. On Friday, the company announced a reduction of 12,000 jobs, or ~6% of its global workforce. Morgan Stanley raised its price target to $125 from $120 (28% upside), while CTBC Securities rated Alphabet a new add with a $102 price target (4% upside).

Exhibit 2: Significant2 Contributors to Opportunity Equity Representative Account Performance, 1/13/23 - 1/20/23

Name Type Net Return
Expedia Group, Inc. Equity 4.9%
Farfetch Ltd Equity 9.8%
OneMain Holdings, Inc. Equity 5.2%
Coinbase Global, Inc. Equity 10.4%
Alphabet Inc. Equity 6.4%

Source: Miller Value Partners. See below for additional information.

Jefferies raised its price target on Teva Pharmaceutical Industries Limited (TEVA) to $12 from $10 (15% upside), while lowering its rating to hold from buy citing “a more balanced risk-reward.”

ADT Inc. (ADT) fell below the 50-day moving average. Filings revealed that Daniel Bresingham, EVP of ADT Commercial, sold 258,000 shares at $9.60 for a total consideration of ~$2.5M. Orange Solar Holdco LLC, an affiliate of Sunpro founder and current EVP of ADT Solar Mark Jones, filed to sell 3.2M shares. RBC raised its price target to $10 from $9 (14% upside).

JP Morgan Chase & Co. (JPM) fell over the course of last week after previously announcing 4Q earnings that exceeded consensus expectations, but issuing 2023 guidance that fell slightly behind estimates, particularly in its consolidated net interest income (NII) outlook. Revenue came in at $35.6B vs. $34.1B expected, while EPS came in at $3.57 vs. $3.10 expected. The company beat on both net interest income (NII) coming in at $20.2B vs $18.6B expected and core fees. The company saw a greater than expected improvement in capital ratios, as the CET1 ratio rose 70bps to 13.2% vs. 12.7% expected. Having reached the bank’s 13% CET1 target, management also announced they expect to resume buybacks in 1Q 2023. The company issued FY 2023 NII guidance of $73B vs. $75B expected, with in-line expenses at $81B while guiding for card net charge offs (NCOs) of 2.6% vs. 2.4% expected. Oppenheimer raised its price target to $177 from $169 (31% upside), while UBS raised its price target to $167 from $156 (24% upside).

United Airlines Holdings, Inc. (UAL) fell despite reporting 4Q earnings and issuing FY 2023 guidance that came in well ahead of consensus expectations. The company reported revenue of $12.4B and EPS of $2.46, both well ahead of estimates of $12.2B and $2.12. Total revenue per available seat mile (TRASM) was 21% higher than 2019 levels on 10% less capacity, continuing to show strong demand and pricing power. The company provided strong forward guidance with FY 2023 adjusted operating margins of 9% and EPS in the range of $10.00-12.00 well ahead of consensus of $6.64. The company expects 1Q 2023 TRASM to be up 25% y/y with capacity also up 20% y/y. Argus raised its price target to $61 from $52 (23% upside), while Barclays raised its price target to $52 from $45 (5% upside).

Canada Goose Holdings Inc. (GOOS) fell on limited news.

Exhibit 3: Significant2 Detractors from Opportunity Equity Representative Account Performance, 1/13/23 - 1/20/23

Name Type Net Return
Teva Pharmaceutical Equity -7.4%
ADT Inc Equity -10.3%
ADT Inc Equity -5.5%
Canada Goose Holdings Equity -4.8%
United Airlines Holdings, Inc. Equity -4.2%

Source: Miller Value Partners. See below for additional information.

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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.

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 Miller Value Partners 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 Miller Value Partners. 

©2023 Miller Value Partners, LLC