Last week, the Opportunity Equity strategy gained 2.53%, outperforming the S&P 500’s 0.39% rise. (Exhibit 1). The strategy ended the week down -25.51% YTD, 1,327 basis points behind the S&P 500.
Exhibit 1: Preliminary Performance of Opportunity Equity Strategy Versus S&P 500, Through 8/5/221
|Time Period||Opportunity Equity||S&P 500|
|Last Week (7/29 - 8/5)||2.53%||0.39%|
|Inception (annualized since 6/26/00)||6.59%||6.88%|
Source: Bloomberg, Miller Value Partners
Uber Technologies Inc (UBER) rose above the 100-day moving averages after the company reported better than expected Q2 results with its first ever positive free cash flow quarter. Revenue came in at $8.1B vs. $7.4B expected with EBITDA of $364M ahead of consensus at $266M and Free cash flow of $382M. Monthly active platform consumes (MAPCs) and trips were up strongly 21% and 24% YoY. The company guided for 3Q gross bookings slightly below consensus at $29-30B vs $30.1B expected (25-30% YoY growth) while EBITDA guidance came in above consensus at $440-470M vs $392M expected. Uber received a number of price target increases with Barclays raising its price to $54 from $53 (68% upside), Evercore ISI increasing its price target to $75 from $69 (134% upside) , while Morgan Stanley raised its price target to $70 from $68 (118% upside). It was later announced that the company sold its minority stake in Indian food-delivery company Zomato Ltd. For $390M in a block trade. Teva Pharmaceutical (TEVA) continued to rise after the company announced a $4B proposed nationwide opioid litigation settlement. Bank of America upgraded the company from neutral to buy, raising its price target to $13 from $10 (22% upside), while Goldman Sachs raised its price target to $10 from $9 (-8% downside), retaining its neutral rating. ADT Inc (ADT) rose through the 200-day moving average after reporting strong Q2 earnings. Revenue came in ahead of consensus expectations at $1.6B vs. $1.57B expected while EBITDA also beat at $598M vs. $574M expected. The company also showed very strong subscriber acquisition costs (SAC) which dropped to an all-time low. Farfetch Ltd (FTCH) crossed above the 50-day moving average. Cowen downgraded the name to a market perform rating while cutting its price target $9 from $11 (1% upside), while Goldman Sachs cut its price target to $20 from $34 (124% upside) while maintaining its buy rating. Norwegian Cruise Line Holdings Ltd. (NCLH) rose through the 50-day moving average on limited news.
Exhibit 2: Significant Contributors to Performance, 7/29/22 - 8/5/22
|Uber Technologies Inc||Equity||35.7%|
|Norwegian Cruise Line Ltd.||Equity||8.7%|
Source: Miller Value Partners
DXC Technology Company (DXC) fell through the 50 and 100-day moving averages after the company reported Q1 FY 2023 earnings that fell short of consensus expectations. Revenue came in at $3.71B vs. $3.69B expected, but adjusted operating margins came in at 7% vs. 7.75% expected, due to FX headwinds on the topline coupled with inflation pressure on the cost side. Adjusted EPS also came up short at $0.75 vs. consensus at $0.81 and guidance at $0.83 while book-to-bill fell below 1x coming in at 0.9x. During the quarter, the company repurchased 8.85M shares (~4% of shares outstanding) at an average price of $30.09. The company lowered full year guidance with revenue of $14.6-14.75B (down from $14.9-15.05B), adjusted EBIT margin of 8.0-8.5% (down from 8.5-9.0%) and adjusted EPS of $3.45-3.75 (down from $3.85-4.15). The company is still confident that they will be able to hit their 2024 targets but the path to get there will be more difficult. BMO cut its price target to $36 from $37 (41% upside), while Morgan Stanley cut its price target to $30 from $33 (17% upside). Ovintiv Inc.(OVV) fell through the 50 and 100-day moving averages despite reporting Q2 earnings that were in-line with consensus expectations. Revenue came in at $3.74B vs. $2.67B expected, while EBITDA came in at $1.28B vs. $1.25B expected. Capital spending came in well ahead of consensus expectations at $511M vs. $537M expected. During the quarter, the company accelerated its plan to shift its capital allocation strategy nearly three months ahead of schedule and will now return at least 50% of FCF to shareholders via repurchases. The company guided to return $389M to shareholders in 3Q22, a 12.8% annualized cash return yield. National Bank cut its price target to $99 from $100 (107% upside). Diamondback Energy Inc. (FANG) fell through the 200-day moving average despite reporting results that were in-line with consensus expectations. Revenues came in at $2.47B vs. $2.46B expected, while EBIT came in at $1.66B, in-line with expectations, but CapEx came in behind consensus at $553M vs. $461M due to cost inflation. EPS beat consensus expectations at $7.93 vs. $6.63 expected. During the quarter, the company further enhanced its capital return program, and will now return at least 75% of FCF to shareholders via dividends and share repurchases. The company expects to generate $4.6B in free cash flow in 2022 at current strip pricing, a 21% FCF yield and implies a cash return of 15.6%. Expedia Group Inc (EXPE) fell despite reporting solid Q2 results. Revenues came in at $3.2B vs. consensus at $3.0B, while EBITDA came in at $648M vs. $568M expected. The company called out a clear strategy to shift towards targeting higher life-time-value (LTV) customers and shifting its focus away from acquiring transactional, lower LTV room nights, highlighting the risk of market share loss. Expedia received a number of price target cuts with UBS lowering its price target to $108 from $183 (5% upside), while Benchmark lowered its price target to $197 from $275 (92% upside) and Deutsche Bank cut its price target to $130 from $235 (27% upside). Mattel Inc (MAT) fell through the 50 and 200-day moving averages on limited news.
Exhibit 3: Significant Detractors from Performance, 7/29/22 - 8/5/22
|DXC Technology Company||Equity||-19.2%|
|Diamondback Energy Inc||Equity||-5.1%|
|Expedia Group Inc||Equity||-3.3%|
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.
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