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May 03, 2021

Opportunity Equity Update for Week Ended 4/30/21

Christina Siegel Malbon

Capital One Gained on 1Q Results While Uber Fell on Driver Classification Concerns

Last week, the Opportunity Equity strategy gained 2.30%, outperforming the S&P 500’s -0.04% increase (Exhibit 1). The strategy ended the week up 20.92% YTD, 908 basis points ahead of the S&P 500.

Exhibit 1: Preliminary Performance of Opportunity Equity Strategy Versus S&P 500, Through 4/30/211

Time Period Opportunity Equity S&P 500
Last Week (4/23 - 4/30) 2.30% 0.04%
MTD 3.65% 5.34%
QTD 3.65% 5.34%
YTD 20.92% 11.84%
Inception (annualized since 6/26/00) 9.68% 7.26%

Source: Bloomberg, Miller Value Partners

Capital One Financial Corp (COF) surged as the company provided better than expected first quarter results. Revenues came in at $7.18bn, which was above consensus estimates of $6.96bn. EPS came in with an even stronger beat, as the company produced $7.03 a share in earnings with estimates for just $4.11, driven lower loan loss provisions that increased earnings by $2.67 a share. The company repurchased $490M shares in the quarter. The strong results caused numerous price target changes, with Wells Fargo increasing their target from $143 to $155 (upside of 4.0%), Credit Suisse moving their target from $150 to $160 (upside of 7.3%), and Deutsche Bank raising their target from $135 to $170 (upside of 14.3%), among others. There was a Bloomberg report that Bausch Health Companies (BHC) is exploring a sale of its eye care unit (B&L).This marks a change from the August 2020 announcement that B&L would be made into its own public company. The article points to the enterprise value of the business as being between $20-$30bn dollars, and sent the stock up through the 50-day moving average. Green Thumb Industries Inc. (GTBIF) rose through the 50-day and 100-day moving averages as the company announced a $217mm dollar senior debt financing deal at 7%, that will allow them to refinance more $105mm of more expensive debt and invest the remainder into their growing business. Cantor Fitzgerald reiterated their buy rating but dropped the price target from $50 to $46 (upside of 43.8%) on sector re-rating concerns. Facebook Inc. (FB) soared as the company produced strong earnings that easily beat consensus numbers. The company had $26.2bn (+48% YoY) in revenue in the first quarter relative to expectations of just $23.7bn. The company posted an operating margin of 43.5% which crushed expectations for a 33.8% operating margin in the quarter. The revenue beat was primarily from higher than expected advertising revenue, and prompted a rash of price target changes. Canaccord Genuity raised their target from $350 to $380 (upside of 16.9%), JP Morgan increased their target from $360 to $390 (upside of 20.0%), while Stifel raised their target from $350 to $400 (upside of 23.0%) among others.  Diamondback Energy Inc. (FANG) rose as Roth Capital raised their price target from $84 to $115 (upside of 40.7%), with earnings coming this week.

Exhibit 2: Significant Contributors to Performance, 4/23/21 - 4/30/21

Name Type Return
Capital One Financial Corp. Equity 9.8%
Bausch Health Companies Inc. Equity 8.5%
Green Thumb Industries Inc. Equity 14.0%
Facebook Inc. Cl A Equity 8.0%
Diamondback Energy Inc. Equity 7.4%

Source: Miller Value Partners

Uber Technologies Inc. (UBER) fell below the 50-day and 100-day moving average as US Department of Labor Secretary Marty Walsh expressed a view that most US gig workers should be employees. Uber has long fought to keep their workers as contractors, and the Secretary’s comments raised concerns that Federal regulation could override the current arrangement. It was also reported that Uber and other gig economy companies have been offering compromises to regulators whereby they will provide their workers additional benefits but come up short of making them full blown employees. Needham initiated coverage with a buy rating and a price target of $77 (upside of 40.6%) as the company plans to recruit 20k new drivers on post-Covid-19 demand in the UK alone. Barclays also adjusted their price target from $70 to $72 (upside of 31.5%). Precigen Inc. (PGEN) dropped below the 50-day moving average and WW International Inc. (WW) fell as well on limited news.

Exhibit 3: Significant Detractors from Performance, 4/23/21 - 4/30/21

Name Type Return
Uber C32 1/22 Derivative -12.2%
*New Security* Equity -4.7%
Uber Technologies Inc. Equity -5.5%
Precigen Inc. Equity -4.2%
WW International Inc. Equity -3.5%

-Source: Miller Value Partners

Check out the Income Strategy weekly Update. Click to Read.

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. Content may not be reprinted, republished or used in any manner without written consent from Miller Value Partners.

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