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May 03, 2022

Opportunity Equity Update for Week Ended 4/29/22

Christina Siegel Malbon

Alibaba Climbs as Government Calls for Normalization of Regulation While Amazon Falls on Cost Deleverage

Last week, the Opportunity Equity strategy fell by -3.01%, outperforming the S&P 500’s  -3.26% loss. (Exhibit 1). The strategy ended the week down -17.02% YTD, 410 basis points behind the S&P 500.

Exhibit 1: Preliminary Performance of Opportunity Equity Strategy Versus S&P 500, Through 4/29/221

Time Period Opportunity Equity S&P 500
Last Week (4/22 - 4/29) -3.01% -3.26%
MTD -10.79% -8.72%
QTD -10.79% -8.72%
YTD -17.02% -12.92%
Inception (annualized since 6/26/00) 7.20% 6.93%

Source: Bloomberg, Miller Value Partners

Alibaba Group Holding Ltd. (BABA) and (JD 1/24 C75) rose sharply with JD climbing above its 50-day moving average after the Chinese Politburo promised to boost stimulus while still working to contain the country’s worst Covid outbreak since 2020. Mattel Inc (MAT) rose through the 50-day moving average following a Wall Street Journal report that multiple reputable PE firms have had conversations with Mattel. This was followed by the company reporting strong 1Q results the next day. Revenue came in at $1.04B, ahead of consensus $922M while EBITDA of $152M beat consensus of $76M, and EPS surprised at $0.08 vs. -$0.02 expected.  The company reiterated FY22 guidance despite any negative impact from Russia/Ukraine. Meta Platforms Inc (FB) rose after the company reported Q1 results which came in better than feared. Daily Active Users (DAUs) came in at ahead of expectations at 1.96B vs estimates of 1.94B. Revenue was roughly in-line with consensus at $27.9B vs $28.2B, while EBITDA of $13.2B came in ahead of expectations of $12.7B, and EPS of $2.72 beat expectations for $2.56. Management announced its plan to curb discretionary spending, lowering its expense guidance range from $92.5B to $89.5B at the midpoint. The company repurchased 34M shares (1.25% of shares outstanding) during the quarter. The company guided for 2Q22 revenue of $28-30M below consensus of $30.7B while taking down expense expectations.  Morgan Stanley raised its target on Ovintiv (OVV) from $49 to $68 (32% upside), while Citi raised its price target from $46 to $64 (25% upside).

Exhibit 2: Significant Contributors to Performance, 4/22/22 - 4/29/22

Name Type Return
Alibaba Group Holdings Ltd. ADS Equity 12.3%
JD 1/24 C75 Derivative 49.9%
Mattel Inc Equity 6.7%
Meta Platforms Inc Cl A Equity 8.9%
Ovintiv Inc Equity 1.8%

Source: Miller Value Partners Inc (AMZN) fell after the company reported earnings that missed expectations on the bottom-line and disappointed on guidance. The company generated revenue of $116.4B, in-line with expectations of $116.5B but GAAP EBIT of $3.7B disappointed vs expectations of $5.3B as the company saw deleveraging in their model as a result of lower productivity from being overstaffed and deleverage of fixed costs from excess capacity in fulfillment and transportation. The company guided for Q2 revenue of $118.5B behind consensus of $125B, while Operating Profit guidance came in well behind at $1.0B vs. $6.9B expected. Bausch Health Companies Inc (BHC) fell after the company launched its Bausch & Lomb (B+L) IPO roadshow implying an equity value of $7.4-8.4B, and a 12-13x EV/EBITDA valuation coming in lower than peer multiples and below consensus expectations. Cleveland-Cliffs Inc (CLF) fell through the 50-day moving average following steel prices lower despite reporting a solid 1Q beat. The company reported revenue of $5.96B ahead of consensus of $5.40B, with EBITDA of $1.45B ahead of expectations of $1.31B, and EPS of $1.50 beating consensus of $1.46. Management reiterated their expectation for the business to generate record FCF on a full-year basis as the company continues to lock in higher contract steel prices. The company raised their FY22 average selling price to $1,445/ton driven by better than expected prices for April contract renewals.  Wedbush lowered its target from $380 to $160 (41% upside) on Coinbase Global Inc. (COIN) due to lower trading volume as well as elevated expenses ahead of its 1Q earnings report this week. Green Thumb Industries (GTBIF) fell on limited news.

Exhibit 3: Significant Detractors from Performance, 4/22/22 - 4/29/22

Name Type Return Inc Equity -13.9%
Bausch Health Companies Inc Equity -12.3%
Cleveland Cliffs Inc Equity -11.8%
Green Thumb Industries Inc Equity -11.1%
Coinbase Global Inc Ordinary Shares Equity -14.3%

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