Last week, the Opportunity Equity strategy gained 3.69%, outperforming the S&P 500’s -0.26% fall (Exhibit 1). The strategy ended the week up 15.84% YTD, or 826 basis points ahead of the S&P 500.
Exhibit 1: Preliminary Performance of Opportunity Equity Versus Equity Indices, Through 5/12/171
| Time Period | Opportunity Equity | S&P 500 |
| Last Week (5/5 - 5/12) | 3.69% | -0.26% |
| MTD | 7.19% | 0.40% |
| QTD | 7.83% | 1.43% |
| YTD | 15.84% | 7.58% |
| Inception (annualized since 12/30/99) | 6.81% | 4.87% |
Source: Bloomberg, Miller Value Partners
Valeant Pharmaceuticals (VRX) reported Q1 adjusted EBITDA of $861M versus analyst estimates of $858.9M and reduced their net debt by $1.3Bn. The company expects to pay down $5Bn in debt from divestitures and free cash flow by February 2018. Management raised FY adjusted EBITDA guidance from $3.55-$3.70Bn to $3.60-$3.75Bn. Wayfair Inc. (W) ran up into Q1 results where they posted adjusted EBITDA of -$21M and EPS of -$0.48, both exceeding expectations of -$32M and -$0.57, respectively. The beat was driven by a 32% rise in direct retail revenues, continued improvement in international investments, better traction with repeat customers, and improved gross margins of +70bps. The stock was upgraded at Bank of America to “Buy” from “Neutral” and increased their PT 70% to $75, or 22% above where it currently trades. Apple Inc. C100 1/18 (AAPL) was a top contributor this week as the company’s PT was increased at a number of firms on the street based on improving sentiment and the iPhone 8. Most notably, Drexel Hamilton, hiked their PT to $202/share from $185, or 30% above its current value. Intrexon (XON) gained after reporting Q1 revenues of $53.7M, a 24% YoY increase. The top line beat was driven by a 37.3% rise in collaboration and licensing revenues and a 12.1% gain in service revenues. In addition, the company met milestone goals in their energy business and hired investment banking firm, Moelis & Company, to advise them on strategic and financial alternatives for the segment. The stock rose above its 50 and 100-day moving averages. Endo Pharmaceuticals (ENDP) reported Q1 adjusted EPS from continuing operations of $1.23 versus analyst estimates of $1.10. The company also reported revenues of $1.04Bn and EBITDA of $478M, both beating street estimates of $1.02Bn and $427.3M, respectively. The company also reiterated FY17 adjusted EPS guidance of $3.45-$3.75 versus consensus estimates of $3.61.
Exhibit 2: Significant Contributors to Performance, 5/5/17 - 5/12/17
| Name | Type | Return |
| Valeant Pharmaceuticals | Equity | 35.0% |
| Wayfair, Inc. | Equity | 25.1% |
| Apple Inc. C100 1/18 | Derivative | 15.8% |
| Intrexon Corp. | Equity | 17.4% |
| Endo Pharmaceuticals Holdings | Equity | 19.0% |
Source: Miller Value Partners
Quotient Technology (QUOT) declined last week as the stock moved below its 100-day moving average on no apparent news. Pandora Media (P) reported lackluster Q1 results that were relatively in-line but cut FY revenue guidance to $1.50-$1.65Bn from $1.55-$1.70Bn. The company secured $150M in financing from KKR, while also exploring additional strategic alternatives. Alexion Pharmaceuticals (ALXN) fell below closely watched technical levels as Brazilian police searched their offices in a sales and fraud probe. Allergan PLC (AGN) reported Q1 EPS and revenue that beat analyst expectations, but was downgraded at Goldman Sachs to “Neutral” from “Buy” with a new PT of $262, 14.8% implied upside. The analyst cited lack of a near-term catalyst and peaking margins as rationale for the downgrade. OneMain Holdings (OMF) announced the pricing of $500M in senior notes, which the company intends to use for general corporate purposes. Bank of America upgraded the stock from “Underperform” to “Buy” with a new PT of $28, 18.5% above where it currently trades.
Exhibit 3: Significant Detractors from Performance, 5/5/17 - 5/12/17
| Name | Type | Return |
| Quotient Technology | Equity | -7.0% |
| Pandora Media | Equity | -8.1% |
| Alexion Pharmaceuticals | Equity | -6.8% |
| Allergan PLC | Equity | -5.7% |
| OneMain Holdings | Equity | -2.8% |
Source: Miller Value Partners
1The 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 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.
©2017 Miller Value Partners
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