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May 18, 2021

Opportunity Equity Update for Week Ended 5/14/21

Christina Siegel Malbon

Energy Transfer Rises on Price Target Changes, While the RealReal Falls on Earnings  

Last week, the Opportunity Equity strategy fell -2.89%, underperforming the S&P 500’s -1.35% loss (Exhibit 1). The strategy ended the week up 14.54% YTD, 281 basis points ahead of the S&P 500.

Exhibit 1: Preliminary Performance of Opportunity Equity Strategy Versus S&P 500, Through 5/14/211

Time Period Opportunity Equity S&P 500
Last Week (5/7 - 5/14) -2.89% -1.35%
MTD -5.28% -0.10%
QTD -1.82% 5.23%
YTD 14.54% 11.73%
Inception (annualized since 6/26/00) 9.37% 7.24%

Source: Bloomberg, Miller Value Partners

A host of banks raised their price targets on Energy Transfer LP (ET) following the company’s above expectations quarterly cash flow announced the previous week. Credit Suisse raised their target to $13 from $11 (upside of 28.6%). Wells Fargo also increased their target to $12 from $10 (upside of 18.7%) on the back of the strong earnings report, with Goldman Sachs likewise pushing their valuation from $10 to $12 a share (upside of 18.7%)  Precigen Inc. (PGEN) rose above the 200-day moving average after their quarterly earnings. The company posted revenue of $24.5mm vs. estimates of $19.1mm, and a loss per share of -$0.09 against consensus estimates of a -$0.16 loss, ending the quarter with over $200mm in cash on the balance sheet. The company updated their various cancer therapy candidates’ progress, including clearing an FDA hurdle to allow them to proceed straight to a DL3 trial, with interim dose escalation to occur in the 2nd half of the year in their PRGN-3005 UltraCAR-T therapy. Other trials and research continued to make progress.  Bausch Health Companies (BHC) rose through the 100-day moving average as the company announced that new data from the National Eye Institute showed that their AREDS2 nutrient formula continues to reduce the risk of progression in patients with Age-Related Macular Degeneration. There was limited news on DXC Technology Company (DXC) and Desktop Metal Inc. (DM).

Exhibit 2: Significant Contributors to Performance, 5/7/21 - 5/14/21

Name Type Return
DXC Technology Company Equity 6.8%
Energy Transfer LP Equity 4.4%
Precigen Inc. Equity 5.8%
Bausch Health Companies Inc Equity 3.5%
Desktop Metal Inc. Equity 4.7%

Source: Miller Value Partners

The RealReal, Inc. (REAL) fell through the 200-day moving averages as the company posted quarterly results. GMV came in at $327mm ahead of consensus of $310mm leading to revenue of $99mm ahead of consensus of $96mm. EBITDA was in line with consensus at -$35.6mm vs -$35.5mm expected due to lower take rate on high priced items such as handbags and jewelry. The company guided for 2Q GMV of $320mm to $330mm (growth of 75-80% YoY) ahead of consensus of $313mm. The company announced the planned departure of CFO Matt Gustke by year-end. B of A Securities cut their price target from $32 to $26 (upside of 79.8%) on the news, while Credit Suisse trimmed their target from $33 to $29 (upside of 100.6%), and B. Riley cut their target from $26 to $20 (upside of 38.3%). Canada Goose Holdings (GOOS) fell below the 50-day and 100-day moving average. The company reported revenue of C$209mm vs. estimates of C$164mm. EPS came in at C$0.01 against expectations for -C$0.12. The company provided FY22 guidance that disappointed with total sales exceeding C$1Bn vs consensus of C$1.12Bn and adjusted EBIT margin in the mid-to-high-teens vs the Street expecting 22.2% as the company focuses on incremental investments in marketing, digital and footwear. RBC Capital cut their price target from C$68 to C$53 (upside of 14.5%), while Credit Suisse raised their target from C$64 to C$68 (46.9% upside). Alibaba Group Holdings (BABA) fell after reporting mixed FY4Q21 results. The company reported revenue of CNY 187.4Bn, over expectations for CNY 180.2Bn. Adjusted EBITA came in at CNY 22.6Bn below Street estimates for CNY 28.0Bn, leading to EPS of CNY 10.32 CNY/share against expectations for CNY 11.16 per share.  The company guided for FY22 revenue of CNY 930Bn (30% YoY) in-line with consensus with flat EBITDA guidance as the company plans to invest incremental profitability back into new businesses. Citi raised their price target to $306 (upside of 46.1%), while Truist decreased their price target from $315 to $290 (upside of 38.4%) among others. Diamondback Energy Inc. (FANG) fell on limited news during the week.

Exhibit 3: Significant Detractors from Performance, 5/7/21 - 5/14/21

Name Type Return
The RealReal, Inc. Equity -36.6%
*New Security* Equity -15.9%
Canada Goose Holdings Equity -11.7%
Alibaba Group Holding Lid. ADS Equity -7.0%
Diamondback Energy Inc. Equity -6.1%

-Source: Miller Value Partners

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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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