Convertibles mixed: financials weaken, B of A lower, but PNC holds in; Pier 1 trades stronger

By Rebecca Melvin

New York, Feb. 2 - Convertibles players sold some financials on Monday and bought a couple of names that were kind of surprising, including Pier 1 Imports Inc., but otherwise investors mostly watched and waited, sources said.

"It was very, very quiet," a West Coast based-sellsider said of Monday's session, attributing the lull to it being the first day of the trading month and people being hung over from Sunday night's Super Bowl parties.

The hard-fought Steelers-Cardinals' face off was definitely more exciting than what Monday brought, which included the latest batch of economic data, which didn't do anything more than point to continuing economic weakness.

Personal consumption spending dropped by 1% in December, which was slightly worse than the 0.9% drop economists' expected, and incomes fell a third consecutive month. But the 0.2% drop was slightly better than expected. Construction spending in December fell 1.4%, which is a bit larger than the 1.2% decline that was forecast.

The Institute for Supply Management's manufacturing index rose to 35.6 in January, which was up from December's record low 32.9. But while it was a little better than expected, any reading below 50 signals contraction.

Meanwhile, a lack of any new details on Washington's financial rescue plan fostered weakness in that sector, and Bank of America Corp.'s convertible preferreds were swung lower on Monday amid a drop in their underlying common shares.

But PNC Financial Inc. saw its convertible bonds hold in despite weaker shares.

Pier 1 was up, surprisingly, amid no particular news.

SanDisk Corp. was in line with lower shares ahead of a big quarterly loss on goodwill and asset impairment charges, which was reported after the close. That sent shares of the flash memory chip maker lower in after-hours trading.

Hologic Inc. was also in line with shares ahead of a better-than-expected profit but weaker outlook, posted after the close.

Pier 1 trades at 30

Pier 1's 6.38% due 2036 traded intraday at 30, according to a New York-based sellsider. That was up from previous trades between 27.5 and 29.5 but within the range of last week's trades, a Connecticut-based sellside analyst said.

The convertibles appeared to settle at about 29.5 versus a share price of $0.33, which was down 2 cents, or 5.7%, on the day.

"There's no definitive reason as to why these are trading up. [It] could be someone covering a short," the analyst said. "And this level was the middle of the market from last week, so I don't think it's that high."

"What's key with this name is cash burn going forward. Right now, liquidity is sufficient to handle convert but who knows what next quarter will bring...With a put two years out, these bonds still appear very risky to me. Only play in my eyes is a takeover," the analyst said.

The Fort Worth, Texas-based furniture and decor retailer faces the same tough headwinds that are affecting the overall sector, namely reduced consumer spending. But its woes are longer standing, as it has had sales declines for several years.

B of A weaker, PNC firm

B of A's 7.25% convertible preferreds traded at 460 Friday, which was down from about 500 earlier but was similar to pricing seen the previous week, as the preferreds trade volatility.

Shares of the Charlotte, N.C.-based banking giant dropped 58 cents, or 8.8%, to $6.00.

Like other names in the sector, B of A has been volatile, trading on headlines about when the Obama administration will unveil its financial rescue package and how likely the package will be to include a system to help banks rid themselves of bad assets.

PNC's 4% convertibles due 2011 traded at 92.5 during the session, which was within the trading range that they had been in, despite the fact that the shares traded down.

Shares of the Pittsburgh-based financial services company settled only 34 cents, or 1%, lower at $32.18.

SanDisk flat to slightly lower

SanDisk's 1% convertibles due 2013 were flat to slightly lower Monday, trading between 52.125 and 53.525, which was in line with shares, which settled down 15 cents, or 1.3%, at $11.28.

But in after-hours trading, the shares sank after the Milpitas, Calif.-based maker of flash storage cards used in consumer electronics reported a loss of $1.86 billion for the fourth quarter on revenue that declined 31% on a year-over-year basis.

"Despite a very difficult pricing environment, macroeconomic turmoil and the impact on consumer purchasing, we delivered sequential revenue growth in the fourth quarter. However, we are very disappointed with our fourth-quarter bottom line results, which included significant asset impairment and inventory related charges," chairman and CEO Eli Harari said in a news release.

SanDisk is a yield play that isn't of much interest to hedge players, a West Coast-based sellsider said.

It has a 16.7% yield to maturity and 4.1 years to maturity. "The premium on this is approximately 300%, so there is no hedge/swap interest," the sellsider said. Instead, it's an outright bet on company credit.

In its outlook, SanDisk said that due to lower demand and consumer confidence and continued over-supply, market demand growth will be slower than expected.

It also anticipates continued significant declines in average selling prices and fluctuations in operating results

Hologic steady ahead of earnings

Hologic's 2% convertibles due 2037 traded at 64 versus a share price of $11.75, which was little changed from previous levels.

The Bedford, Mass.-based diagnostic test maker reported after the close a better-than-expected profit of $48 million, compared to a $358.6 million loss a year ago, which included a charge related to its Cytyc acquisition.

Revenue grew 16% to $429.2 million. But the company cut its 2009 outlook.

"As we stated in our preliminary earnings release on Jan. 12, 2009, this year will be challenging for us, as many drivers of our business remain uncertain," Jack Cumming, chairman and chief executive, said in a news release.

"We witnessed an unprecedented decline in demand for capital equipment at the end of the first quarter, which impacted sales of our Selenia digital mammography systems among our hospital customers. As such, we have implemented a series of measures to control expenses and protect our bottom line. Our focus continues to be on our three new products submitted to the FDA for approval and on our long-term goals."

The company said cash flows from operations and the balance sheet remain strong, but it revised downward its guidance.

Fiscal 2009 revenues are expected to be about $1.625 billion to $1.675 billion. The revenues will be driven mostly by an increase in revenues in the company's diagnostics segment, including the recently acquired Third Wave products, and from growth in NovaSure products, offset by anticipated decreases in breast health segment, primarily related to mammography product line, including the Selenia full-field digital system.

Non-GAAP adjusted earnings per share will be about $1.10 to $1.15. Included in this guidance are the full-year results of Third Wave, excluding any U.S. contribution for FDA approval of the HPV PMA, which was expected to be dilutive to non-GAAP adjusted EPS by $0.12 per share.

Mentioned in this article:

Bank of America Corp. NYSE: BAC

Hologic Inc. Nasdaq: HOLX

Pier 1 Imports Inc. NYSE: PIR

PNC Financial Services Group Inc. NYSE: PNC

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.