Hutchinson, Dendreon higher after preliminary earnings; Goodrich looks rich; Intel active

By Rebecca Melvin

New York, Jan. 14 - The U.S. convertible debt market remained better bid on Tuesday with a broad swathe of the market seeing higher pricing in line with higher underlying shares.

It appeared that outright investors were putting money to work in various names in the absence of any new issuance to invest in this week. Meanwhile some hedged participants were sort of spinning their wheels given that earnings season isn't yet in full swing and the hiatus in new issuance looks likely to continue a bit longer.

"The market is sort of blasé. A lot of my stuff is where it traded a month-and-a-half ago, so it's not moving dramatically," a trader said.

Earnings preannouncements pulled some convertible names into trade. Hutchinson Technology Inc.'s 8.5% convertibles were higher on an outright basis after the Hutchinson, Minn.-based designer and maker of precision technologies released its preliminary earnings figures, saying revenue was up on higher demand and that profit was 7% to 8% of sales, which is up from 1% of sales for the year-earlier quarter.

Dendreon Corp.'s convertibles remained better bid after moving up on an outright basis on Monday following a strong preliminary earnings report.

Goodrich Petroleum Corp.'s convertibles - which were looking very rich, traders said - edged higher as shares of the Houston-based oil and natural gas company reversed a multi-day slide.

Among financial names, Starwood Property Trust Inc. was a representative, and it traded better in line with the underlying shares, a New York-based trader said.

The Starwood convertibles were seen trading on both an outright and hedged basis. The Starwood 4% convertible, which trades on about a 60% delta, was up in line at 112.75 bid, 113 offered with the underlying shares around $28.50, a New York-based trader said.

But dominating overall volume was Intel Corp., which was also active on Monday but saw increased action in the convertibles market on Tuesday. The two Intel convertible issues accounted for about 20% of volume overall on Tuesday.

Shares of the Santa Clara, Calif.-based chip giant were also up, notching a 52-week high. The company is expected to report earnings on Thursday, and on Tuesday J.P. Morgan Securities LLC upgraded the stock to "overweight" from "neutral" and increased its price target to $29.00 from $20.00.

In support of his actions, the JPMorgan analyst said he thinks the PC market will remain relatively stable this year and that Brian Krzanich, the company's new chief executive, will provide focused leadership, driving better margins and returns.

In economic data, U.S. retail sales rose 0.2% in December, the Commerce Department said. Economists had expected a 0.1% increase. Auto sales fell 1.8%, which weighed on sales overall, but excluding autos, December retail sales were up a solid 0.7%. Even though retail sales were revised down for October and November to a 0.5% increase and 0.4% increase, respectively, for all of 2013, retail sales were up 4.2%.

The data encouraged equity investors, and stock indices climbed after a big drop on Monday. The S&P 500 stock index gained 19.68 points, or 1.1%, to 1,838.88; the Dow Jones industrial average rose 115.92 points, or 0.7%, to 16,373.86; and the Nasdaq stock market added 69.71 points, or 1.7%, to 4,183.02.

Hutchinson, Dendreon up

Hutchinson's 8.5% convertibles due 2026 traded up in the 94 context, compared to 91 previously, traders said.

Hutchinson shares surged 42 cents, or 12%, to $3.87.

The company preannounced results for its fiscal first quarter ended Dec. 29.

Net sales climbed to about $70 million from $64.9 million and the company estimated that profit was 7% to 8% of net sales, compared to a loss of $400,000 in the year-earlier quarter.

Dendreon's 2.875% convertibles due 2016 moved up to 70 on Monday from about 65 to 66 late last week, a Connecticut-based trader said. Shares spiked 9% on Monday and extended gains by 1% on Tuesday, ending at $3.30.

The Seattle-based maker of the Provenge prostate cancer drug said that overall product revenue for the quarter jumped more than 10% from the previous quarter to $74.8 million with growth in its oncology segment and more modest gains in urology.

Goodrich Petroleum rich

Goodrich Petroleum's 5% convertibles due 2032 traded at 104, and that was up 0.5 point.

Goodrich shares added 63 cents, or 4%, to $15.49 in lighter-than-average volume.

"It's really rich and hard to borrow," a New York-based trader said of the Goodrich convertibles. "It's a name that the outright guys love, and one of those more illiquid names that have been impacted and become more rich in the absence of new issuance."

"This is one of those outright darlings" that is likely to keep getting richer until there is new issuance, the trader said.

Intel dominates volume

Intel's 2.95% convertibles due 2035, which is the older of the company's two convertible bond issues, gained 2.25 points to 114.5 by early afternoon. Nearer to the market close, the bond was 114.9, according to Trace data.

Intel's 3.25% convertible due 2029 traded up 2.2 points to 138.1 and was last at 138.385, according to Trace data.

Intel shares rose $1.01, or 4%, to $26.51. It touched $26.55 during the session, which was a 52-week high.

In addition to the JPMorgan upgrade on Tuesday, on Monday, Goldman Sachs & Co. said it expects Intel's fourth-quarter results to be better than the midpoint of guidance.

Analysts anticipate net income of 52 cents per share on revenue of $13.72 billion for the fourth quarter. Intel will report earnings on Thursday.

"The bonds are not in an awful spot, and the stock's not a bad play either," a trader said, referring to the fact that the bonds could be played on an outright or hedged basis.

"These were possibly better on swap today," a trader said of the convertibles.

A second trader said that he thought there were investors trading out of the old Intel issue into the new one. "I think they are buying the new issue and cycling out of the old issue. You see that in a lot of names," a New York-based trader said.

Mentioned in this article:

Dendreon Corp. Nasdaq: DNDN

Goodrich Petroleum Corp. NYSE: GDP

Hutchinson Technology Inc. Nasdaq: HTCH

Intel Corp. Nasdaq: INTC

Starwood Property Trust Inc. Nasdaq: STWD

© 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.