United Therapeutics gains on hedge after earnings; Cash America down outright, up on hedge

By Rebecca Melvin

New York, July 26 - United Therapeutics Corp. improved on an outright and hedged basis on Thursday after the Silver Spring, Md.-based biotechnology company beat estimates on both its top and bottom lines for the second quarter.

The United Therapeutics' improvement on a dollar-neutral, or hedged, basis was 0.75 point to a point, on a lighter-than-average 70% to 75% delta, market sources said.

Cash America International Inc. dropped outright, but "opened up" about 2 points on a hedged basis after the Fort Worth, Texas-based pawn shop operator missed estimates and said third-quarter earnings would be lower than last year.

Amarin Corp. plc's convertibles were trading as investors awaited news for the Dublin-based drug developer that was forthcoming at the market close when the U.S. Food and Drug Administration approved its prescription fish-oil pill to lower triglyceride levels.

Clearwire Corp. traded up slightly by a point or so amid a pop in the underlying shares ahead of earnings that were posted after the market close. The Bellevue, Wash.-based wireless broadband services provider said it expects to report a narrower-than-expected loss on higher-than-expected revenue for the full year.

The Clearwire 8.25% convertibles due 2040 were quoted at 64.75 bid, 65.5 offered, compared to 63.5 bid, 64.5 offered on Wednesday.

Meanwhile, RadioShack Corp.'s convertibles were little changed again, trading at 91.5 on Thursday, after wavering on Wednesday after the Fort Worth, Texas-based electronics retailer reported an unexpected loss.

Equities in the broader market rallied on Thursday, and the bid was slightly better across the board in convertibles, a trader said.

"The high-yield index is up 1% today and that helps converts," the trader said.

Although the selloff in equities earlier in the week didn't seem to affect convertibles that much, improved equities were helping the convert market some as supply remains constrained.

United Therapeutics improves

United Therapeutics' 1% convertibles due 2016 traded up to 126.25 versus an underlying share price of $52.50, right after earnings, compared to a previous level of 121.5 versus an underlying share price of $49.87.

The bonds were better by about a point on a dollar-neutral basis, a trader said, based on a 3% gain in the underlying shares, which widened to closer to 5% by the end of the day.

Shares of the Silver Spring, Md.-based biotechnology company ended up $2.28, or 4.5%, to $52.68 on the day.

"They had pretty good numbers and good news," said the trader, who was on a 78% delta. Many players had it on a lighter 68% delta, he said.

A second source said the bond improved by only 0.125 point.

The company reiterated product guidance, and beat on both top and bottom," the second source said, citing a statistic that for health-care companies that overall in this earnings season only 37 companies have beaten on revenue and 74 companies have beaten for earnings.

For the second quarter, United Therapeutics reported net income of 72.3 million, or $1.34 per share. That compares with $73.9 million, or $1.18 per share, in the previous year's quarter. Analysts were expecting earnings of $1.10 per share on $213.4 million in revenue.

Revenue rose 23% to $225.6 million.

United Therapeutics makes three drugs that treat pulmonary arterial hypertension, or high blood pressure in the lungs.

Cash America better on hedge

Cash America's 5.25% convertibles due 2029 traded after earnings news at 156 versus an underlying share price of $37.17, compared to a previous level of 184.5 versus an underlying share price of $45.12.

Cash America shares fell $8.43, or 19%, to $36.69.

"Outright guys got torched," a sellside trader said. But on a 95% delta, the bonds widened 2 points, he said.

Parity in the name was 185, so some players may have had a 95% to 100% delta. After earnings the delta was a little lighter in the 90% to 93% range.

The bonds were busy for the past few sessions prior to earnings, and shares slipped during that time.

On Wednesday, the owner and operator of pawnshops in the United States and Mexico pulled its planned initial public offering of its online lending arm, Enova International.

On Thursday, the company cut its outlook for third-quarter and full-year net income to between 95 cents and $1.05 per share for the quarter and $4.35 and $4.60 per share for the year.

Analysts had expected earnings of $1.25 per share for the quarter and $4.97 for the year.

The company also said the IPO withdrawal will cost $3 million, or 6 cents per share, in the third quarter.

For the second quarter, Cash America's net income rose to $29.8 million, or 94 cents per share, from $27 million, or 84 cents per share, a year earlier. But analysts had expected earnings of 97 cents per share.

Second-quarter revenue rose about 19% to $411.6 million. Analysts expected revenue of $407.2 million.

The company cited weak demand in pawn lending in the second quarter for its weaker quarter.

But overall, "the company is fine," a sellsider said, regarding the fundamental health of Cash America.

"Earnings were a mess, but I don't think pawn lending, or shadow banking, is going away," he said.

He described the company as a small, growth company for which growth has slowed. "When that happens the stock takes a hit."

The $100 million issue was initially priced in May 2009.

Amarin looks better

Amarin's 3.5% exchangeables due 2032 traded at 190 bid, 191 offered, according to a trader.

Shares of the Dublin-based developer of drugs to treat central nervous system disorders jumped 74 cents, or 5% on the day, to $15.31.

The health care name looked better on hedge by about 0.75 point on an 88% delta, the trader said.

Investors were awaiting news during the session, but they expected Amarin's cholesterol drug AMR101 was likely to be approved.

The drug, called Vascepa, is made from ultra-purified ethyl EPA, an omega-3 fatty acid commonly found in fish. An FDA spokesperson confirmed the approval, according to a news report.

Mentioned in this article:

Amerin Corp. plc Nasdaq: AMRN

Cash America International Inc. NYSE: CSH

Clearwire Corp. Nasdaq: CLWR

RadioShack Corp. NYSE: RSH

United Therapeutics Corp. Nasdaq: UTHR

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