Last week, the Opportunity Equity strategy gained 3.18%, outperforming the S&P 500’s 1.61% rise (Exhibit 1). The strategy ended the week up 9.07% YTD, or 479 basis points ahead of the S&P 500.
Exhibit 1: Preliminary Performance of Opportunity Equity Strategy Versus S&P 500, Through 1/12/181
| Time Period | Opportunity Equity | S&P 500 |
| Last Week (1/5 - 1/12) | 3.18% | 1.61% |
| MTD | 9.07% | 4.28% |
| QTD | 9.07% | 4.28% |
| YTD | 9.07% | 4.28% |
| Inception (annualized since 6/26/00) | 7.68% | 5.66% |
Source: Bloomberg, Miller Value Partners
United Continental Holdings (UAL) rose over the week after publishing its December traffic and 4Q17 investor update after market close. Passenger revenue (PRASM) came in flat for fourth quarter at the top end of its revised range of down 2% to flat. Non-fuel costs are now expected to be up 1.5-2% in 4Q compared to previous guidance of 2.5-3.5% and pre-tax margin was raised to 6-7% from 3-5% previously. American Airlines Group Inc. (AAL) increased over the week after releasing an update to its 4Q guidance. The company increased its unit revenue (TRASM) to up 5-6% versus previous guidance of +2.5%-4.5%. The company’s non-fuel costs were lowered but were still high at up 4% versus previous guidance of 4.5% and pre-tax margin was increased to 6.5-7% from 4.5-6.5%. Amazon.com Inc. (AMZN) rose over the week with Credit Suisse raising its price target on the company to $1410 from $1385, Stifel raising its price target to $1,425 from $1,313 and Piper Jaffray raising its price target to $1,400 from $1,200. Platform Specialty Product Corp. (PAH) crossed above the 100-day moving average after issuing preliminary 2018 EBITDA guidance of $860M-$890M compared to consensus of $877M. The company expects to have 5.5x net leverage by the end of 2018 guiding for FCF growth in excess of adjusted EBITDA growth and interest expense coming in at $300M with CAPEX of $100M. The company continues to plan on its separation into two independent companies in 2018 with the IPO of the Ag chemical unit. The planned leadership of Arysta (the Ag chemical unit) will include Rakesh Sachdev as Chairman and Diego Lopez Casanello as CEO. Performance Solutions planned leadership includes retaining current PAH Chairman Martin Franklin and CEO Rakesh Sachdev. Intrexon Corp. (XON) crossed above the 50-day moving average over the week after presenting at the JP Morgan Healthcare Conference.
Exhibit 2: Significant Contributors to Performance, 1/5/18 - 1/12/18
| Name | Type | Return |
| United Continental Holdings | Equity | 13.0% |
| American Airlines Group Inc. | Equity | 11.0% |
| Amazon.com Inc. | Equity | 6.2% |
| Platform Specialty Products Corp. | Equity | 10.4% |
| Intrexon Corp | Equity | 11.9% |
Source: Miller Value Partners
Endo Pharmaceuticals Holdings Inc. (ENDP) declined over the week. A joint letter from the attorneys representing both ENDP and QuVa Pharma was sent to the District Court Judge requesting to schedule a hearing on a preliminary injunction. The letter suggests that QuVa has access to vasopressin API and is nearing launch readiness for their compounded product which would compete with Endo’s Vasostrict. In addition, Endo received a grand jury subpoena over oxymorphone products. Pandora Media Inc. (P) was downgraded to equal weight at Morgan Stanley with a price target of $6, citing engagement and monetization challenges. Facebook Inc. (FB) declined after announcing its plan to change the ranking algorithm for Newsfeed. The change will elevate content from friends and family above the content from businesses, brands, and media. Mark Zuckerberg, CEO, said he believes this will lead to people spending less time on Facebook but lead to more meaningful time spent. OneMain Holdings Inc. (OMF) was downgraded at JP Morgan to underweight from neutral with a price target of $35, upside of 3%. Gamestop Corp. (GME) fell below the 50-day moving average after releasing December sales which showed Holiday comps of 11.8% versus consensus of 6%. The results were driven by strong hardware (38.3%), with software sales inline (7.3%) and pre-owned sales decline (-8.1%). Tech brand sales came in below expectations declining 18.6% as limited iPhone availability hurt. Collectibles were up 19.4% which implies that GME will not hit their target for 30-40% growth for 2017. The company now expects FY17 SSS to be +4-6% versus previous guidance of low-single digits to mid-single digits growth and reiterated its adjusted EPS guidance of $3.10-$3.40/share.
Exhibit 3: Significant Detractors from Performance, 1/5/18 - 1/12/18
| Name | Type | Return |
| Endo Pharmaceuticals Holdings Inc | Equity | -8.5% |
| Pandora Media Inc. | Equity | -11.2% |
| Facebook Inc. | Equity | -4.0% |
| OneMain Holdings Inc. | Equity | -1.3% |
| Gamestop Corp. | Equity | -4.9% |
Source: Miller Value Partners
1The performance figures reflect the results of a representative account net of management fee and certain other expenses. For important additional information about Opportunity Equity performance, please click on the Opportunity Equity 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 the Strategy 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.
©2017 Miller Value Partners, LLC
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