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Morning Commentary: RH convertibles active post-earnings; new iQIYI notes improve
By Abigail W. Adams
Portland, Me., March 29 – Markets were strong on the final day of the first quarter with equities roaring back from a volatile week.
While the overall market was strong on Friday, the convertible notes of RH, formerly Restoration Hardware, were in focus as the stock tanked following the company’s fourth-quarter earnings report.
RH’s short-duration notes saw a large dollar-neutral expansion as the convertible notes fell in high-volume activity early in Friday’s session, a market source said.
The 0% convertible notes maturing on June 15 were pumped up into the earnings report, the source said.
The notes were changing hands around 115 on Thursday. They dropped down to 103 early in Friday’s session.
RH’s 0% convertible notes due 2023 fell about 7 points outright to 87.5 early in Friday’s session.
However, the notes were trading largely in line on a dollar-neutral, or hedged, basis.
RH stock was $106.95, a decrease of 18.93%, early in Friday’s session.
While RH beat on the bottom line in its fourth-quarter earnings report, it missed on the top.
RH reported non-GAAP earnings per share of $3.00 versus analyst expectations for earnings per share of $2.85.
Revenue was $671.8 million versus analyst expectations for revenue of $687 million.
However, the steep decline in RH stock was attributed to it slashing its outlook for the current fiscal year.
RH reduced its forecast for earnings per share to $8.41 to $9.08 as opposed to its earlier projection of $9.30 to $10.70, The Street reported.
Meanwhile, iQIYI Inc.’s 2% convertible notes due 2025 continued to see high-volume activity in the secondary space with the notes again improved with stock up early in the session.
The notes gained more than 1.5 points outright to trade north of 103 early in Friday’s session.
iQIYI’s stock was up to $23.52, an increase of 3.52%.
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