WellPoint slips in line with shares; AK Steel surges after earnings beat; Regis moves up

By Rebecca Melvin

New York, Jan. 28 - WellPoint Inc.'s large issue of 2.75% convertibles slipped in active trade on Tuesday in tandem with a dip in the underlying shares of the Indianapolis-based health benefits company.

The WellPoint trading action came ahead of the company's quarterly results expected before the market open on Wednesday and after FBR Capital initiated coverage on the stock with a "market perform," with a $93 price target.

AK Steel Holding Corp.'s 5% convertibles took off in active trade on Tuesday after the West Chester, Ohio-based steel products maker reported earnings and revenue that beat expectations. Shares surged 19%.

Both of these convertible bond issues were priced in the last half of 2012 and are in-the-money.

Meanwhile, Regis Corp.'s convertibles remained active and moved up slightly during the session, extending gains the bonds notched on Monday when they expanded following the Minneapolis-based hair salon operator's disappointing earnings.

Regis' 4.5% convertibles due July 15, 2014 were seen last at 101.55 with the underlying shares at $11.90, a New York-based trader said at the end of the session. Earlier, the bonds were trading at 101.25 to 101.375 with shares lower by about 1%. Shares regained ground during the session, closing lower by only 5 cents at $12.04.

Ford Motor Co.'s 4.25% convertibles due November 2016 traded mostly flat to slightly weaker after the Dearborn, Mich.-based automaker reported fourth-quarter-profit that beat estimates on revenue that was in line with expectations.

Overall, trading in the convertibles market was pretty quiet, however, sources said Tuesday. Equities gained amid a continuing stream of earnings reports that were mostly positive and despite mixed economic data.

Consumer confidence rose in January to an index level of 80.7 from a revised 77.5 in December, the Conference Board said Tuesday. The January index was higher than economists expected. But the Commerce Department reported that durable goods orders fell in December by 4.3%, pulled down by weak demand for transportation equipment, primary metals, computers, electronic products and capital goods. Economists had been expecting a 1.8% rise in durable goods orders in December.

In addition, to economic data and earnings, traders had the central bank on their radars. The Federal Open Market Committee's regular two-day policy meeting will end on Wednesday when the Fed will announce whether it will continue tapering its bond-purchase program.

WellPoint, AK Steel active

WellPoint's 2.75% convertibles due 2042 traded at 127.98 during the session with the underlying shares of the health care benefits company weaker. Shares ended down 59 cents, or 0.7%, to $84.30.

Even though the underlying shares have come in significantly since the beginning of the year, the company's convertible bonds are still in-the-money, with an initial conversion price of about $75.50.

The WellPoint convertibles are a large, $1.5 billion issue that priced in October 2012.

FBR said in its note to initiate coverage on the stock that the company is focused on the unproven exchange-based health care coverage market.

AK Steel's 5% exchangeables due 2019 jumped more than 18 points during the session to 150, according to Trace data.

The bonds changed hands late in the session at 150 with the underlying shares up over the $7.00 mark. Earlier in the session the paper was quoted at 144.478 versus an underlying share price of $6.48.

AK Steel shares rose $1.12, or 19%, to $7.11 on Tuesday.

Driving the climb was earnings per share that were 4 cents better than expected on better-than-expected revenue.

The company reported net income of $38 million, or 27 cents per share, for its fourth quarter, compared to a loss of $59 million, or 41 cents, in the year-earlier period.

Excluding items, the company lost $122 million, or 84 cents per share, compared to a net loss of $50 million, or 35 cents per share, in the year-ago quarter.

Revenue for the fourth quarter was down about 5% to about $4.3 billion, which just barely missed consensus estimates.

Ford flat to weaker

Ford's 4.25% convertibles due 2016 were seen late in the session at 185.5 bid, 186.5 offered versus an underlying share price of $15.71, which was Monday's closing stock price, according to one market source. That was unchanged from the previous day's market.

A second market source quoted the Ford bonds a little lower at 184.5 bid, 185.5 offered with the stock at $15.71.

Both quotes were at the end of the session.

Ford shares ended up a penny at $15.72.

The Dearborn, Mich.-based automaker reported fourth-quarter net income of $3.04 billion, or 74 cents per share. Excluding a big tax gain, net income was 31 cents per share, which was 4 cents better than estimates.

Revenue rose 4% to $37.6 billion.

Looking ahead, the company reiterated its 2014 forecast for a pretax operating profit falling to between $7 billion and $8 billion, from $8.6 billion in 2013. The auto maker said higher outlays for new model development and tougher price competition would be behind the weaker profit.

Mentioned in this article:

AK Steel Holding Corp. NYSE: AKS

Ford Motor Co. NYSE: F

Regis Corp. NYSE RGS

WellPoint Inc. NYSE: WLP

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