Convertibles thinly traded to start week; Ctrip.com paper higher in line; Chemed expands

By Rebecca Melvin

New York, Feb. 18 - U.S. convertibles were thinly traded Tuesday at the start of the holiday-shortened week following Presidents Day holiday weekend, and snow was a feature of the day in the Northeast much to the chagrin of market players.

"I'm getting tired of the snow every day," a New York-based trader said. He said various issues were trading but not on much volume.

One of the day's more actively traded names was Ctrip.com International Ltd., which traded higher and about in line with the underlying share of the Shanghai-based travel services provider in follow-through from its earnings news last week. Shares were up another 10% on Tuesday and have gained about 30% since Thursday.

Chemed Corp.'s convertibles gained on an outright and hedged basis on Tuesday after the Cincinnati-based hospice operator reported quarterly earnings that missed estimates but guided full-year earnings above consensus. Chemed shares surged 10.5%.

Elsewhere, Salix Pharmaceuticals Inc.'s 1.5% convertible due 2019 finished up at 167.5 versus the closing share price of the Raleigh, N.C.-based drug maker at $103.14, which was up $2.34, or 2.3%.

There is generally still a bid tone to the market, at least in credit sensitive names, but light volume Tuesday, a trader said.

A second trader said, "It felt pretty slow today with Trace volume hitting only about $311 million in institutional sized trades."

Ctrip.com adds in line

Ctrip's 1.25% convertibles, of which $800 million priced in October, ended the day at about 101 versus the closing share price of $51.11, a New York-based trader said.

A second trader said he saw them at 100.5.

Ctrip shares added $5.28, or 11.5%, on the day.

"That's pretty good for Ctrip. It looks like they moved in line," a New York-based trader said, adding that the paper started out the day at 98 to 99.

The bonds trade on about a 50% delta.

On Thursday the company reported fourth-quarter earnings that beat estimates, and since then the shares have gained 30%.

The company reported per-share earnings of 28 cents for the quarter, which was 5 cents higher than analysts had expected. Revenue was $237.94 million, which was 31% higher than a year earlier and beast estimates.

For the full-year, the company earned $1.10 per share, which was 6 cents higher than estimates. Revenue totaled $889.93 million, which beat estimates by $12.6 million.

Looking ahead, Ctrip expects current-quarter revenue to continue growing at a year-over-year rate of about 25% to 30%, which results in a range of $233.75 million to $243.1 million. Analysts were expecting revenue of $239.75 million.

Chemed expands on hedge

Chemed's 1.875% convertibles, which are short dated and come due May 15, traded up to about 108 by the end of the day versus the underlying shares at $84.93, which was up $8.05, or 10.5%, on the day.

The bonds were up from about 103.5 bid, 104.5 offered at the beginning of the day, and the gain represented a 1-point-plus expansion on a hedged basis, a New York-based trader said.

"That was a pretty high gamma name, and it expanded from about a 50% [delta hedge] to about 80% on the day, which was up a point and change," the trader said.

For its health care business, Chemed reported earnings were down 7.6% to $1.45 per share on revenue that decreased 5.4% to $349 million.

Net patient revenue was down 6.1% for the quarter and admissions of 15,445 represented a decrease of 3.5%.

For its Roto-Rooter segment, adjusted earnings increased 7.8% on revenue that was down 3.4%.

But looking ahead, the company expects full-year 2014 earnings per share, excluding non-cash expense for stock options, the non-cash interest expense related to the accounting for convertible debt, litigation and other discrete items, to be $5.90 to $6.10. This compares to Chemed's 2013 reported adjusted earnings per diluted share of $5.62.

In its earnings release, the company said that effective Oct. 1, 2012, Medicare increased the average hospice reimbursement rate by about 0.9%. Effective April 1, 2013, Medicare reduced hospice reimbursement rates 2%. As a result, effective April 1, 2013, this 0.9% increase was reduced to a 1.1% decline in Medicare rates when compared to prior year. Effective Oct. 1, 2013, Medicare increased the average hospice rate about 1.4%.

Chemed's health care business revenue growth will continue to be constrained in the first half of 2014. This is a result of the first quarter of 2013 having Medicare rates 2% higher than the subsequent quarters. In addition, the business expects a continued shift from high acuity care to routine home-care will impact revenue comparisons for the first half.

Full-year revenue growth for the business, prior to Medicare Cap, is estimated to be 1% to 3%. Admissions are estimated to increase 3% to 4% and full-year adjusted EBITDA is estimated to be $5.6 million. With revenue, adjusted EBITDA and admissions growth anticipated to begin in the second quarter of 2014, with the majority of this growth will be weighed to the second half.

Roto-Rooter is expected to achieve full-year 2014 revenue growth of 3% to 4%, the company said. This revenue estimate is based upon increased job pricing of about 2% and job count essentially equal to the prior year. Adjusted EBITDA margin for 2014 is estimated in the range of 19% to 20%.

Mentioned in this article:

Chemed Corp. NYSE: CHE

Ctrip.com International Ltd. Nasdaq: CTRP

Salix Pharmaceuticals Inc. Nasdaq: SLXP

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