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Morning Commentary: Dycom in focus, convertibles drop outright, expand on hedge
By Abigail W. Adams
Portland, Me., Aug. 13 – Dycom Industries Inc.’s 0.75% convertible notes due 2021 were in focus on an otherwise quiet morning in the convertible secondary space.
The notes were expanding on a dollar-neutral basis as the notes dropped alongside stock after the specialty contractor for telecommunications providers lowered its future guidance.
The 0.75% convertible notes dropped about 10 points outright to trade between par and 101 early in Monday’s session as stock dropped more than 20%.
The notes expanded about 2.5 points dollar-neutral on a 60% to 65% delta, a market source said.
However, holders of the notes were primarily outright accounts, the source said. With the notes dropping back to par, they may appeal to more outright buyers.
However, their small coupon and short duration make them not very exciting, a source said.
Dycom lowered its second quarter and full-year guidance ahead of its second-quarter earnings announcement. Non-GAAP earnings per share are now expected to be 94 cents to 97 cents versus previous guidance for $1.02 to $1.17, according to a company news release.
Non-GAAP earnings per share for 2019 are now expected to be $2.17 to $2.62 versus previous guidance of earnings per share of $3.81 to $4.70.
Prior to the Monday announcement, the 0.75% convertible notes were trading in the 110 to 113 range for much of August, according to Trace data.
The convertible notes also dropped after Dycom’s first-quarter earnings miss in May when the company also lowered its guidance.
The convertible notes were trading around 130 in the run up to the company’s first-quarter earnings report on May 22.
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