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Feb 14, 2023

Opportunity Equity Update for Week Ended 2/10/23

William Keenan

Uber Rises on Robust Profitability Outlook While Mattel Falls on Earnings Miss

Last week, the Opportunity Equity Strategy's representative account fell -5.80%, underperforming the S&P 500’s -1.07% decline. (Exhibit 1). The strategy ended the week up 18.28% YTD, 1,157 basis points ahead of the S&P 500.

Exhibit 1: Performance of Opportunity Equity Representative Account Net of Fees, Versus S&P 500, Through 2/10/231

Time Period Opportunity Equity Representative Account S&P 500
Last Week (2/3 - 2/10) -5.80% -1.07%
MTD -2.17% 0.40%
QTD 18.28% 6.71%
YTD 18.28% 6.71%
1 Year -22.13% -7.66%
5 Year 5.37% 11.27%
10 Year 10.06% 12.57%
Inception (annualized since 6/26/00) 6.51% 6.70%

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

Ovintiv Inc (OVV) followed commodity prices higher over the course of the week. In oil, Russia announced that it would cut its oil output by 500 thousand barrels per day starting in March, in response to the G7’s price cap on its crude oil exports and the EU’s outright ban on its oil exports. In natural gas, the US Energy Information Administration (EIA) reported a natural gas draw of 217 billion cubic feet (Bcf), well ahead of the prior week of 151 Bcf, and consensus estimates of 199 Bcf.

Uber Technologies Inc (UBER) rose after the company reported better than expected Q4 results. Revenue of $8.6B and EBIT of $665M were ahead of consensus at $8.5B and $619M, respectively. Monthly active platform customers (MAPCs) and trips were up strongly 11% and 19% y/y. The company guided for 1Q gross bookings slightly below consensus at $31-32B vs $31.75B (17-21% y/y growth) while EBITDA guidance came in above consensus at $660-700M vs $600M for the street. Uber received a number of price target updates including Wells Fargo raising its price to $53 from $46 (55% upside), while JMP lowered its price target to $55 from $65 (60% upside).

Fiserv, Inc. (FISV) rose after reporting strong Q4 results across all segments, while providing forward guidance +150 bps ahead of consensus on revenues. The company reported adjusted revenue of $4.4B, up 8% y/y, in-line with expectations of $4.4B along with EPS of $1.91, up 22% y/y, slightly behind consensus of $1.92. The company provided FY23 guidance that was in-line to ahead of estimates with revenue growth of 7-9% (implying top-line of $19.1B vs consensus of $18.0B) and EPS of $7.25-7.40 (vs estimates of $7.30). Fiserv repurchased 7.6M shares over the quarter for $750M, bringing full year repurchases to 25.4M shares (4% of shares outstanding). Barclays raised its price target to $140 from $125 (21% upside), while Raymond James raised its price target to $135 from $109 (17% upside).

OneMain Holdings, Inc. (OMF) rose as the company reported 4Q EPS of $1.56, 2% ahead of consensus partly driven by lower-than-expected provisions ($404M vs street at $413M) and a 6% beat on other revenue. Importantly, credit is showing early signs of stabilization with net charge-offs of 6.88% beating estimates of 7.09% while 30–89-day delinquencies remained solid at 3.07%, consistent with seasonal patterns. Capital allocation remains shareholder friendly as the company raised the quarterly dividend of $0.95/share to $1.00/share (8.8% annualized yield) and repurchased 1.6M shares for $57M (1.3% of shares outstanding). FY23 guidance sees net charge-offs of 7.0%-7.5% vs. consensus of 6.9%, and receivables growth of low-to-mid single digits in-line with consensus at 3.8%. Citi raised its price target to $50 from $39 (10% upside), while Credit Suisse raised its price target to $54 from $45 (19% upside).

General Motors Company (GM) announced a strategic long-term agreement with Global Foundries to secure a critical component of its semiconductor supply chain. Earlier in the week, Bloomberg news reported that GM is competing to purchase a $2B stake in Brazilian mining company Vale’s base metals unit.

Exhibit 2: Significant2 Contributors to Opportunity Equity Representative Account Performance, 2/3/23 - 2/10/23

Name Type Net Return
Ovintiv Inc Equity 5.3%
Fiserv, Inc. Equity 8.5%
OneMain Holdings, Inc. Equity 3.8%
Uber Technologies Inc. Equity 3.7%
General Motors Company Equity 0.5%

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

Coinbase Global, Inc. (COIN) fell below the 200-day moving average after rival exchange Kraken paid $30M to the SEC and was forced to wind down its crypto staking activities. In a statement to Bloomberg news, Coinbase chief legal officer stated that the company’s on-chain staking services are “fundamentally different” and that Coinbase’s staking program was not affected by the news.

Mattel Inc (MAT) fell below the 50, 100, and 200-day moving averages after reporting Q4 2022 results that came in well below consensus. Revenue of $1.6B and EBIT of $79M fell short of consensus of $1.9B and $175M, respectively. Management guided for revenues in 2023 to be flat y/y, with 47% gross margins from pricing and cost savings.  FCF was guided for at least $400M (6% yield). DA Davidson raised its price target to $31 from $23 (68% upside), while Goldman Sachs lowered its price target to $21 from $26 (14% upside).

Expedia Group, Inc. (EXPE) fell after reporting Q4 results that fell short of consensus expectations. Revenue of $2.6B and EBITDA of $449M fell short of consensus of $2.7B and $559M, respectively. FY 2022 FCF came in ahead at 2.8B for the full year vs. consensus of $2.3B, 70% above 2019 levels. Over the course of FY 2022, Expedia paid down $2.2B of debt and repurchased 5.2M shares for $500M (3.3% of shares outstanding). Bernstein raised its price target to $100 from $88 (7% upside), while Credit Suisse lowered its price target to $174 from $176 (62% upside).

The United Kingdom’s Competition and Markets Authority (CMA) set a deadline of April 5th for its phase 1 decision of reviewing Farfetch Limited’s (FTCH) minority stake in Yoox-Net-Porter and consideration of whether the deal may lead to “a substantial lessening of competition.”

Alphabet Inc. (GOOGL) fell below the 100-day moving average after the Telegraph reported that Google’s new AI chatbot, Bard, gave an incorrect answer at its first public demonstration – sparking competition concerns against Microsoft’s new ChatGPT AI service, powered by OpenAI. Loop Capital raised its price target to $125 from $120 (32% upside), while Wells Fargo raised its price target to $150 from $145 (59% upside).

Exhibit 3: Significant2 Detractors from Opportunity Equity Representative Account Performance, 2/3/23 - 2/10/23

Name Type Net Return
Coinbase Global, Inc Equity -23.5%
Mattel Inc Equity -13.1%
Expedia Group Inc Equity -9.3%
Farfetch Limited Equity -18.7%
Alphabet Inc Equity -9.7%

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. 

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