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May 10, 2022

Opportunity Equity Update for Week Ended 5/6/22

Christina Siegel Malbon

Energy Names Rise on Higher Crude Prices while Tupperware Falls on Earnings

Last week, the Opportunity Equity strategy fell by -2.61%, underperforming the S&P 500’s  -0.18% loss. (Exhibit 1). The strategy ended the week down -19.19% YTD, 612 basis points behind the S&P 500.

Exhibit 1: Preliminary Performance of Opportunity Equity Strategy Versus S&P 500, Through 5/6/221

Time Period Opportunity Equity S&P 500
Last Week (4/29 - 5/6) -2.61% -0.18%
MTD -2.61% -0.18%
QTD -13.12% -8.88%
YTD -19.19% -13.07%
Inception (annualized since 6/26/00) 7.06% 6.91%

Source: Bloomberg, Miller Value Partners

Our TLT Puts (TLT P143 1/19/24) followed rates higher over the week. Ovintiv Inc (OVV), Energy Transfer Inc. (ET) and Diamondback Energy Inc (FANG) rose sharply with Diamondback climbing above its 50 and 100-day moving averages in sympathy with rising oil prices. Diamondback reported strong Q1 earnings, with revenue coming in at $2.10B vs. consensus expectations of $1.98B, total production came in at 381M barrels per day vs. 375M expected, EBITDA was $1.53B vs. $1.49B expected, and FCF at $974M vs. $897M expected. The company initiated its first variable dividend of $2.35 per share, maintaining its commitment to repurchase shares only when they increase shareholder value. Energy Transfer reported Q1 results which came in well ahead of expectations. The company reported EBITDA of $3.3B ahead of consensus of $3.0B, with distributable cash flow of $2.08B beating consensus of $1.62B. The company raised its quarterly distribution 30% to $0.20 (6.8% yield) working towards its long-term goal of restoring distributions to pre-Covid levels of $0.305 per unit. The company raised 2022 EBITDA guidance to $12.2-12.6B (up from $11.8-12.2B previously) vs consensus of $12.1B and increased 2022 growth CAPEX to $1.2-2.1B (up from $1.6-1.9B previously). Stifel raised its target from $15 to $17 (46% upside), while Raymond James raised its price target from $14 to $15 (29% upside). There was limited news on Mattel Inc. (MAT).

Exhibit 2: Significant Contributors to Performance, 4/29/22 - 5/6/22

Name Type Return
TLT P143 1/24 Derivative 16.5%
Ovintiv Inc Equity 8.7%
Diamondback Energy Inc Equity 13.2%
Mattel Inc Equity 7.4%
Energy Transfer LP Equity 6.8%

Source: Miller Value Partners

Tupperware Brands Corp (TUP) fell through the 100-day moving average after the company reported disappointing earnings that missed expectations and disappointed on guidance. The company generated revenue of $348M vs. $363M expected, while EBITDA of $29M missed expectations for $44M, and EPS of $0.13 was below consensus of $0.53. Given the uncertainties, the company withdrew 2022 guidance and announced the appointment of Mariela Matute as CFO effective May 24th. Bausch Health Companies Inc (BHC) fell after the company completed the listing of its Bausch + Lomb (BLCO) eye care and ophthalmology equipment business at $18 per share, a 20% discount to the mid-point of the price range of $21-24. Teva Pharmaceutical (TEVA) fell through the 50, and 100-day moving averages after reporting a mixed quarter. The company reported revenue of $3.66B, behind consensus of $3.76B, with EBITDA of $1.14B ahead of expectations of $1.10B, and EPS of $0.55 in-line with consensus at $0.56. the company lowered 2022 topline guidance to $15.4-16.0B from $15.6-16.2B, due to FX and increased competition for Copaxone while maintaining EBITDA, EPS and FCF outlook. The company is optimistic around a global opioid settlement by year-end but increased its legal provision to $2.6B to reflect a more holistic assessment of the liability. Morningstar lowered its fair value estimate from $11 to $10 (28% upside) while Piper Sander lowered its price target from $10 to $7 (11% downside). Norwegian Cruise Line Holdings (NCLH) fell below its 50-day moving average. There was limited news on Splunk Inc (SPLK).

Exhibit 3: Significant Detractors from Performance, 4/29/22 - 5/6/22

Name Type Return
Tupperware Brands Corp Equity -43.5%
Splunk Inc Equity -15.2%
Bausch Health Companies Inc Equity -15.6%
Teva Pharmaceutical-SP ADR Equity -10.0%
Norwegian Cruise Line Holdings Ltd Equity -8.8%

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