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Oct 17, 2022

Opportunity Equity Update for Week Ended 10/14/22

Christina Siegel Malbon

Delta Rises on Solid Earnings while Uber Falls on Renewed Gig Worker Scrutiny

Last week, the Opportunity Equity strategy fell 4.05%, underperform the S&P 500’s 1.53% decline. (Exhibit 1). The strategy ended the week down -35.61% YTD, 1,174 basis points behind the S&P 500.

Exhibit 1: Preliminary Performance of Opportunity Equity Strategy Versus S&P 500, Through 10/14/221

Time Period Opportunity Equity S&P 500
Last Week (10/7 - 10/14) -4.05% -1.53%
MTD 2.54% -0.00%
QTD 2.54% -0.00%
YTD -35.61% -23.87%
Inception (annualized since 6/26/00) 5.83% 6.14%

Source: Bloomberg, Miller Value Partners

Delta Air Lines, Inc. (DAL) rose after reporting 3Q results and guiding for a strong 4Q. The company reported record quarterly revenue in 3Q of $12.8B slightly above consensus of $12.7B but EPS came in slightly below expectations at $1.51 vs $1.53 expected. The company called out a -$0.03 impact from Hurricane Ian in the quarter. The company provided strong forward guidance with revenue expected to be up 5-9% YoY vs consensus of +3% and EBIT margins of 9-11% vs 8% expected. The company guided for EPS in the range of $1.00-1.25 well ahead of consensus of $0.79 and they still expects to be free cash flow (FCF) positive for FY 2022.  While the company did not provide a lot of details for 2023, they guided for costs to be down YoY as they build back capacity and flush inefficiencies out of the system. Cowen upgraded the shares to outperform, maintaining their $54 price target (74% upside).

OneMain Holdings, Inc. (OMF) gained after the company reported September ABS trust data that showed m/m improvements in early-stage delinquencies, a potential sign that credit metrics are stabilizing following management’s proactive approach to tightening the credit box. Barclays lowered its price target to $49 from $57 (50% upside), while Citi lowered its price target to $38 from $41 (16% upside).

JPMorgan Chase & Co. (JPM) rose after reporting strong Q3 earnings. Revenue came in at $33.5B vs. $32.6B expected, while EPS came in at $3.12 vs. $2.86 expected. The company beat on both net interest income (NII) coming in at $17.5B vs $16.9b expected and core fees. The company saw a greater than expected improvement in capital ratios, as the CET1 ratio rose 30bps to 12.5% and the company expects to reach 13% by 1Q23. They expect to resume buybacks (which are currently suspended) in early 2023. The company raised full year NII guidance to $66B with expenses unchanged at $77B while guiding for card net charge offs (NCOs) of 1.5% vs previous <2.0%.

United Airlines Holdings, Inc. (UAL) rose in sympathy with Delta Airlines (DAL) following their strong earnings report. Bloomberg reported that United is considering offers for BA’s 787 and Airbus’ A350 for a 100 widebody jet order. The company already released their Summer 2023 schedule with increased routes to Europe citing strong demand. Barclays lowered its price target to $39 from $45 (10% upside)

Exhibit 2: Significant Contributors to Performance, 10/7/22 - 10/14/22

Name Type Return
Delta Air Lines, Inc. Equity 5.8%
OneMain Holdings, Inc. Equity 4.3%
JPMorgan Chase & Co. Equity 4.9%
United Airlines Holdings Inc Equity 4.8%
*New Security* Equity 5.5%

Source: Miller Value Partners

Green Thumb Industries Inc. (GTBIF) fell through the 50 and 100-day moving averages.

Ovintiv, Inc. (OVV) fell below the 50-day moving average following commodity prices lower over the course of the week.

Uber Technologies Inc (UBER) fell below the 100-day moving average following news the Biden administration proposed a new rule that would make it more likely that gig workers will be classified as employees instead of independent contractors. The initial move seemed largely overdone as it became clear that the proposal looks similar to the rule that existed under the Obama Administration, which did not result in any reclassification of gig workers at the federal level., Inc. (AMZN) held its Prime Early Access sale Oct 13-14 reporting that Prime members “ordered more than 100m items” from third-party vendors. Third-party data service Numerator reported that sales results were lower than typical Prime Day sales while Bank of America estimated that Amazon sold $8B in gross merchandise value (GMV) vs the $10.7B they did during their July Prime Day event.

Alibaba Group Holdings Limited (BABA) fell on limited news.

Exhibit 3: Significant Detractors from Performance, 10/7/22 - 10/14/22

Name Type Return
Green Thumb Industries Inc. Equity -25.5%
Ovintiv Inc Equity -10.3%
Uber Technologies Inc Equity -12.0% Inc Equity -6.7%
Alibaba Group Holdings Limited Equity -10.1%

Source: Miller Value Partners

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1 The performance figures reflect the deduction of a model investment management fee of 1% (the highest fee for separate accounts under our fee schedule) and certain other expenses. For important information about Opportunity Equity Strategy performance, please click on the Opportunity Equity Strategy 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 based on the representative account 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. Portfolio composition is shown as of a point in time and is subject to change without notice.

©2022 Miller Value Partners, LLC