Convertibles mixed; Symantec jumps on top-line surprise; Kodak steady; AmeriCredit rises

By Rebecca Melvin

New York, Oct. 29 - Convertibles turned mixed Thursday - strengthening from overall weakness in the previous couple of sessions - as equities rallied on a surprisingly strong reading of third-quarter U.S. gross domestic product.

There were both buyers and sellers in the convertibles market, as sentiment among investors, particularly equities investors, suddenly switched to a more positive bent, a New York-based sellside desk analyst said.

The significance of Thursday's equities rally was questioned, however.

"Nothing's changed. We had euphoria today, and it will probably be dreary tomorrow, and back and forth," a New York-based sellside trader said, suggesting that real GDP growth was about 1.9%, stripping out housing, autos and inventories, and not 3.5%.

"You have to look at where the numbers are coming from and for sustainability," the sellsider said.

Symantec Corp. bonds jumped about 7 points as its shares surged on the back of encouraging third-quarter earnings, which showed top-line growth and earnings that beat estimates.

Eastman Kodak Co. bonds were mostly steady after dropping steeply last week.

AmeriCredit Corp. traded up a point as its shares added 3.4%.

"I don't think anything has changed for convertibles. You've still got people babysitting earnings. Fine-tuning their portfolios based on earnings data, but otherwise, it's the same," the sellsider said.

The Commerce Department said Thursday GDP grew at an annual pace of 3.5% in the third quarter, faster than the 3.3% rise that economists had expected, amid government stimulus programs like Cash for Clunkers and tax credits for first-time home buyers.

But jobless claims declined at a slower-than-expected pace in the previous week. Workers filing first-time claims for unemployment dipped 1,000 to a seasonally adjusted 530,000 last week. Economists expected a larger decline to 521,000.

"You've still got first time claims over half a million; and I just don't see the consumer coming back any time soon," the sellsider said.

Stocks rose. The Dow Jones Industrial Average surged 200 points, or 2%, to 9,962.58; the S&P 500 index gained 23 points, or 2.3%, to close at 1,066.11; and the Nasdaq Stock index added 38 points, or 2%, to 2,097.55.

Symantec jumps

Symantec's 0.75% convertibles due 2011 traded at 108.5 versus a share price of $17.35, which was up from about 101.5 versus a share price of $15.73 on Wednesday.

Shares of the Cupertino, Calif.-based security software maker surged $2.01, or 13%, after the company reported fiscal second-quarter sales and earnings that topped estimates.

"There's a lot of leverage in the Symantec bonds. It's a pretty big, high delta name; and, whenever the stock moves, it's going to have a big whipsaw," a New York-based sellside analyst said.

The quarter was generally in line, but sales topped estimates. Anytime there is a top-line surprise like that and real sales growth, not just cost cuts, helping earnings, that will generate a lot of enthusiasm at this point, the sellsider said.

Symantec posted revenue of $1.48 billion, down from $1.52 billion in the same period last year. But the number was above the $1.43 billion analysts expected.

The company cited stabilization in the markets it serves for improved spending on information technology services.

The company said it earned $150 million, or 18 cents per share, in the second quarter, compared with $126 million, or 15 cents, a year earlier. Excluding one-time items, Symantec earned $294 million, or 36 cents a share, down from $312 million, or 37 cents, last year. But it was higher than 33 cents per share that analysts expected.

Symantec issued guidance in line with Wall Street's estimate, predicting fourth-quarter revenue between $1.48 billion and $1.51 billion, compared to analysts' forecast of $1.5 billion. Excluding items, the software company expects earnings between 36 cents a share and 37 cents a share. Analysts had been expecting earnings of 37 cents a share.

Kodak steadies after slide

Kodak's 7% convertibles due 2017 changed hands at 80 versus a share price of $3.50 on Thursday, which was unchanged from Wednesday but sharply lower from last week, when the bonds traded at 91 versus a share price of $4.15. A month ago, those bonds traded over par.

Kodak posted a third-quarter loss on declining sales. Those declining sales were probably what triggered the selling, a source said.

Last month Kodak's securities were boosted when the company announced that it had received a cash infusion from Kohlberg Kravis & Roberts.

Kodak said it expects its 2009 revenue decline to be closer to 18% but still in a range of 12% to 18%.

Its third-quarter net loss was $111 million, or 41 cents a share, compared with a year-earlier profit of $101 million, or 35 cents a share.

Excluding special items such as restructuring costs, the loss was 23 cents a share, missing analysts' expectations of a loss of 19 cents a share.

Revenue fell 26% to $1.78 billion, also falling short of analysts' estimates of $1.89 billion. The Rochester, N.Y.-based photography and printing company said revenue in its commercial printing group fell 18% to $674 million.

AmeriCredit up a point

AmeriCredit's 0.75% convertibles due 2011 traded at 91 versus a share price of $17.50 on Thursday, which was up about a point.

Shares of the Fort Worth-based auto finance company rose gradually throughout the session to end up 60 cents, or 3.4%, at $18.13.

AmeriCredit's holders are not the "usual suspects," a New York-based sellsider said, but it is probably an arb play candidate nevertheless just like Kodak.

Mentioned in this article:

AmeriCredit Corp. NYSE: ACF

Eastman Kodak Co. NYSE: EK

Symantec Corp. Nasdaq: SYMC

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