Convertibles mostly quiet; Kodak gains ahead of auction; Navistar firms; SanDisk mixed

By Rebecca Melvin

New York, July 30 - The convertibles market began the week on a quiet note Monday, and although this week's flip of the calendar to August is not typically something the markets anticipate eagerly, there are continued earnings reports and some economic data coming out this week that could make things interesting, sources said.

Among earnings reports was Dendreon Corp.'s, which came after the market close. The Seattle-based biotechnology company announced a narrower quarterly loss, restructuring plans as well as a workforce reduction by 600 jobs amid weak Provenge sales. Shares plunged 17% in after-hours trade.

The markets are also anticipating comments from the U.S. Federal Reserve on Wednesday, and European Central Bank policy makers are slated to meet on Thursday with the widely watched U.S. jobs report on Friday.

Few expect the Fed to announce a new round of quantitative easing this week ahead of the ECB and jobs report.

Stocks closed modestly lower.

In convertibles, stretched valuations were blamed for part of the market's malaise.

"I don't like the valuations of just about everything and have to talk myself into liking anything," a West Coast-based trader said.

A lack of new supply and the need for funds to stay invested were cited as among reasons that valuations have pushed higher.

"Every bond is trading at 100 with a 70% premium," a New York-based sellsider said. And a third source commented that valuations are "very stretched in almost every domestic asset."

Eastman Kodak Co. traded up on a newspaper report about potential bidders for the bankrupt digital photography company's patent portfolio, which is hitting the auction block next month.

At least some of the 8-point jump in the distressed Kodak convertibles on Monday was attributed to short covering, a New York-based trader said.

The widely watched convertibles of Navistar International Corp. firmed for a second day as shares of the Lisle, Ill.-based truck and engine maker also lifted amid no particular news, sources said.

Meanwhile, SanDisk Corp.'s 1.5% convertibles, which opened up a couple of points after the Milpitas, Calif.-based flash memory maker reported earnings earlier this month, were trading roughly in line to down 0.125 point on Monday, a trader said.

SanDisk saw coverage initiated on Monday by Needham & Co. LLC at a hold rating.

Gilead Sciences Inc.'s convertibles continued to gain Monday on essentially flat shares after the Foster City, Calif.-based biopharmaceutical company posted better-than-expected earnings and said it's planning a study of a new Hepatitis C drug on Friday.

Coinstar Inc.'s convertibles were lower in line again after the Bellevue, Wash.-based operator of coin-counting machines and video rental kiosks reported revenue that missed expectations on Friday.

Kodak jumps ahead of auction

Kodak's 7% convertibles due 2017 jumped up to 24 from 16.5 and was later at 21 bid to 21.5 bid, 23 offered, sources said.

Patent portfolio bids are due Aug. 8 for the Rochester, N.Y.-based imaging technology company's digital patents.

The convertibles' jump was sparked by a Wall Street Journal report that pointed to potential bidders for the patents, the most valuable of which are the digital-photography patents, a trader said.

The article was published late Friday, and Monday was the first time investors were able to react to it, a second trader said.

"There's definitely some optionality in those converts," a Connecticut-based trader said of the Kodak convertibles.

Kodak filed for bankruptcy on Jan. 19, 2012.

Navistar adds

Navistar's 3% convertibles due 2014 were active in the 88 bid, 88.75 offered context on Monday. They pushed up late Friday to 88 bid from 87.75 earlier in the day, a trader said.

Navistar shares were higher Friday and Monday as well, with the stock ending Monday up 32 cents, or 1.4%, at $24.00.

These bonds, which hit a low of about 85 on July 10, are being widely watched as an event-driven name in the convertibles space just as Kodak is.

"They have been in the news and they have activist shareholders and everyone is watching this one," a trader said.

SanDisk in line to weaker

With SanDisk shares off 3%, or a point, on the day, the SanDisk 1.5% convertibles due 2017 were seen at 110.375 bid, 110.875 offered versus a share price of $40.98.

The SanDisk 1.5% convertibles are the company's longer-dated paper.

"These were trading some today and they were in line to 'in' a little," a West Coast-based trader said.

After earnings a little more than a week ago, the SanDisk convertibles were 108.375 bid, 108.875 offered versus an underlying share price of $39.00.

The SanDisk 1% convertibles, which mature in May, aren't heard in trade as much as the 1.5% paper.

When it reported earnings July 20, the company said it saw much weaker sales and margins in the second quarter but guided for improvement in the second half.

Excluding one-time items, the company earned 21 cents a share, which was higher than the 18 cents per share that analysts were expecting.

SanDisk had warned in April that flash-chip production was outpacing demand, causing prices to fall. The company said demand for memory from corporate customers and international markets has now improved and is helping the industry rebound.

Mentioned in this article:

Coinstar Inc. Nasdaq: CRST

Eastman Kodak Co. Pink Sheets: EKDKQ

Gilead Sciences Inc. Nasdaq: GILD

Navistar International Corp. NYSE: NAV

SanDisk Corp. Nasdaq: SNDK

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.