Yahoo! slips after weak earnings; Proofpoint adds on swap after earnings; Illumina eyed

By Rebecca Melvin

New York, April 22 – Earnings was the main driver of convertibles trading on Wednesday, sources said.

Yahoo! Inc.’s convertibles traded steadily on an outright basis but were lower by about 0.5 point on a dollar-neutral, or hedged, basis after the Sunnyvale, Calif.-based internet company reported first-quarter results that missed estimates.

Proofpoint Inc.’s convertibles were down about 6 points on an outright basis but were better by about 0.5 point on swap after the Sunnyvale, Calif.-based security-services vendor missed earnings estimates and lowered its full-year earnings estimate. The company, however, reported stronger current and future revenue.

The Proofpoint 1.25% convertibles were seen at 153.125 versus an underlying share price of $56.00, a New York-based trader said. That was up 0.5 point on a delta of about 85%.

Illumina Inc.’s convertibles were essentially mute after the San Diego-based developer of genetic research tools reported strong quarterly earnings that beat estimates, but shares moved lower.

Illumina shares came off $9.27, or 4.7%, to $190.04.

Traders said there was not much going on in the secondary market, and there were no new issues launched or priced in secondary market action.

“We’re going micro story today, as opposed to the broader macro,” a trader said, indicating that earnings news was the emphasis and other news, including economic data, wasn’t much of an influence.

There was positive home data, but it wasn’t a focus, he said.

Sales of previously owned U.S. homes jumped in March by the most in four years, with purchases 6.1% higher to a 5.19 million annualized rate, the National Association of Realtors showed Wednesday.

In the broader markets, stocks pulled higher after a weak start. The S&P 500 stock index moved up 10.67 points, or 0.5%, to 2,107.96; the Dow Jones industrial average added 88.68 points, or 0.5%, to 18,038.27; and the Nasdaq Stock Market gained 21.07 points, or 0.4%, to 5,035.17.

Yahoo! slips on swap

Yahoo!’s 0% convertibles traded around 108, which was little changed on an outright basis, with the underlying shares at about $44.00.

Yahoo! shares ended down 51.5 cents, or 1.2%, to $43.98.

The bonds slipped on a swap basis by about 0.5 point, assuming a delta in the low to mid 50% range, a New York-based trader said.

“I think people were expecting more news in the breakout, a little more volatility. But the story seems to be just more of the same,” he said.

The company posted adjusted earnings of 15 cents a shares, which was about 3 cents below estimates, on sales of $1.04 billion, which was also below estimates.

But during a conference call with analysts the company outlined plans to explore options for its 35% stake in Yahoo Japan Corp., including hiring advisers to consider opportunities to maximize value for its stake currently valued at more than $8 billion.

The company’s Alibaba Group Holdings Ltd. stake in the China e-commerce company is expected to be spun off later this year.

Proofpoint expands on swap

Proofpoint’s 1.25% convertibles were seen at 153.125 versus an underlying share price of $56.00, a New York-based trader said. That was up 0.5 point on a delta of about 85%.

Proofpoint shares pared early losses to close down 0.8% at $58.45. Earlier shares had been down 6% at $55.48.

“They’ve had a great run in the numbers,” a trader said of the company’s results. “They’ve had an unbelievable run for two years, and we are still constructive on the name.”

The Sunnyvale, Calif.-based security-services vendor reported earnings that missed estimates and lowered its full year earnings estimate below consensus, but reported stronger current and future revenue.

Proofpoint said in its release that it continues to experience broad-based demand for its advanced threat protection solutions.

Illumina mostly quiet

Illumina’s 0% convertibles due 2019, or the A tranche, traded little changed at 113.25, according to Trace data, and a trading source, which was not active in the bond, had a level of 111.625 bid, 112.5 offered on the paper.

Illumina’s 0.5% convertibles due 2021, or the B tranche, were not seen in trade, but a level on the paper was 116.375 bid, 117.25 offered.

The older Illumina 0.25% convertibles were indicated lower at 227 from about 239, a market source said.

Illumina shares came off $9.27, or 4.7%, to $190.04.

A trader said, “We have seen much of those,” despite the fact that the company reported strong earnings, and boosted its full-year earnings guidance to a range with a $3.00 handle.

The company reported net income excluding one-time items of $135 million, or 92 cents per diluted share, compared to $80 million, or 53 cents per diluted share, for the first quarter of 2014. Excluding items, the company earned 92 cents per share, which was well over the 72-cents-per-share expected by analysts.

Revenue rose to $539 million, which was up 28% above the $421 million reported in the year-earlier quarter and better than the $525 million that was estimated.

The company also raised full-year guidance for earnings per share of $3.36 to $3.42.

Illumina said that it “delivered significant earnings growth” due to strong demand for its sequencing portfolio.

The company’s genomics market remains nascent but is seeing accelerated adoption, setting the stage for a robust 2015.

Mentioned in this article:

Illumina Inc. Nasdaq: ILMN

Proofpoint Inc. Nasdaq: PFPT

Yahoo! Inc. Nasdaq: YHOO

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