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Aug 16, 2021

Opportunity Equity Update for Week Ended 8/13/21

Christina Siegel Malbon

Rocket Rises on Strong Guidance, while WW International Falls on Earnings Miss

Last week, the Opportunity Equity strategy fell -2.78%, underperforming the S&P 500’s 0.75% gain. (Exhibit 1). The strategy ended the week up 11.07% YTD, 895 basis points behind the S&P 500.

Exhibit 1: Preliminary Performance of Opportunity Equity Strategy Versus S&P 500, Through 8/13/211

Time Period Opportunity Equity S&P 500
Last Week (8/6 - 8/13) -2.78% 0.75%
MTD -5.60% 2.38%
QTD -8.62% 4.13%
YTD 11.07% 20.02%
Inception (annualized since 6/26/00) 9.10% 7.52%

Source: Bloomberg, Miller Value Partners

Rocket Companies, Inc. (RKT) rose through the 50-day moving average as the company posted quarterly results. Adjusted revenue came in at $2.79bn against expectations for $2.82bn, with EPS of $0.46 against estimates for $0.48. The company expects 3Q closed loan volume of $82 to $87bn handily beating estimates of $71.3bn, with rate lock volume of $83-$90bn also ahead of the street’s $70.6bn estimate. Gain on sale margin is estimated at 2.70-3.00% vs expectations of 2.68%. The results led to a mix of price target changes, with both Credit Suisse and Morgan Stanley raising their target from $18 to $19 (downside of 1.3%), while RBC cut their target from $26 to $24 (upside of 24.6%), and Barclays cut their price target from $20 to $19 (upside of 1.3%). Precigen Inc. (PGEN) reported earnings of -$0.10 a share, which was slightly better than expectations of -$0.13. The company ended the quarter with $200mm of cash on the balance sheet. The company announced progress on multiple fronts in their various developing therapies and announced plans to host an R&D day on November 4th coinciding with the American Society of Hematology (ASH) abstract release. The company will have readouts in 4Q21 on their AML CAR-T asset PRGN-3006. The hope is that low dose trials, which showed good results, will translate to this trial and show a strong readout of the UltraCAR-T Technology that is the backbone of the company’s fight against cancer.

The company will also report their Phase 1 Ovarian Cancer UltraCar-T PRGN-3005 data in 4Q21. Lastly, the company expects interim Phase 1 Data for their PRGN-2009 HPV therapy to come in during the fourth quarter. A move higher in Bitcoin drove the Grayscale Bitcoin Trust GBTC) through the 100-day moving average. Taylor Morrison Home Corp (TMHC) crossed above the 100-day moving average and there was limited news on Capital One Financial Corp (COF).

Exhibit 2: Significant Contributors to Performance, 8/6/21 - 8/13/21

Name Type Return
Capital One Financial Corp Equity 7.1%
Rocket Companies, Inc. Equity 9.9%
Precigen Inc. Equity 10.4%
Grayscale Bitcoin Trust Currency 6.5%
Taylor Morrison Home Corp. Equity 5.1%

Source: Miller Value Partners

WW International Inc.  (WW) fell through the 200-day moving averages as the company reported quarterly earnings. Revenues came in at $311mm against consensus of $337mm, with adjusted operating income of $65mm behind expectations for $82mm. The miss came from the fact the company expected there to be a rebound in demand for weight loss as the economy started to open up but it turned out people were more focused on being social. Jeffries cut their price target from $41 to $30 (upside of 30%), Goldman Sachs cut their price target from $44 to $29 (upside of 25.9%), and Truist cut their target from $28 to $26 (upside of 11.1%). Vroom, Inc. (VRM) reported earnings that beat expectations but disappointed on guidance. Revenue of $761.9mm beat consensus estimates of just $647.4mm with EBITDA of 60.7mm slightly beating consensus of $60.9mm. The company guided for total revenue of $858-$891mm vs, consensus of $699mm, but both gross margins and EBITDA disappointed. The company’s gross margin guidance of 6.2% was well below expectations of 8.8% leading to EBITDA of -$100mm to -$92mm against expectations -$59.4mm as the company continues to invest for growth. Stifel lowered their price target from $55 to $46 (upside of 53.1%) while Piper Sandler cut their target from $58 to $54 (upside of 79.7%). Metromile (MILE) fell after reporting disappointing 2Q results and lowering their full year outlook. The company reported Policies in Force of 95.3k, a dismal 2.4% YoY growth rate with average annual premium per policy growing 18.8% YoY to $1,181 as Metromile customers began to drive more. The company also saw an increase in loss ratio to 74.2% up from the 68% level they were expecting for the year. The company materially lowered their 2021 guidance for Policies in Force to >100k from 125k-133k with accident contribution margin coming down to 0-5% from 8.5-13.5% previously. All of this has pushed out their previous 2021 premium run-rate expectations by three quarters to 3Q22. Cantor Fitzgerald dropped their price target from $13 to $7 (upside of 38.9%), while Piper Sandler downgraded their price target from $13 to $6 (upside of 19.0%). The RealReal (REAL) declined after posting mixed earning results. The company reported 2Q21 revenue of $104.9 below expectations of $108.6mm due to mix with adjusted EBITDA of -$32.89mm coming in better than consensus of -$38.97mm. Gross profit per unit surprised to the upside at $94, which brings them closer to their target of $100 GPPU. The company did not provide full year guidance but instead committed to reporting monthly results for the remainder of the year and highlight their goal of getting to breakeven over the next 18 months. Stifel cut their price target from $26 to $19 (upside of 42.4%), while Morgan Stanley lowered their target from $25 to $23 (upside of 72.4%), and Wells Fargo lowered their target from $35 to $28 (upside of 109.8%) among others. Canada Goose Holdings (GOOS) dropped through the 50, 100 and 200-day moving averages as the company reported strong earnings but missed on guidance. The company reported revenue of C$56mm against expectations of C$50mm, while EPS came in at –C$0.45 vs estimates for -C$0.54. Gross margin was below expectations at 54.5% relative to estimates for 60.2%, due to mix shift in sales to new categories. The company reaffirmed their FY22 guidance for revenue over >$1bn but 2Q guidance came in light due to the timing of wholesale moving to later in the year. The company expects 2Q wholesale revenue to grow low double digits with DTC revenue up 50%, which compares to consensus expectations of 43% and 95%, respectively. CIBC Increased their price target from C$59 to $C$60 (upside of 31.3%), while TD increased their target from C$54 to C$56 (upside of 22.5%). Wells Fargo lowered their price target from C$60 to C$54 (upside of 18.2%).

Exhibit 3: Significant Detractors from Performance, 8/6/21 - 8/13/21

Name Type Return
WW International Inc. Equity -25.6%
Vroom, Inc. Equity -20.0%
Metromile Inc. Equity -26.2%
The RealReal, Inc. Equity -18.0%
Canada Goose Holdings Equity -16.1%

-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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