HeartWare expands after narrower loss; Nuance mixed on earnings miss; RTI trades at 102.25

By Rebecca Melvin

New York, April 30 - A raft of earnings news kept convertibles traders busy on Tuesday.

HeartWare International Inc.'s 3.5% convertibles gained outright and on a dollar-neutral, or hedged, basis after the medical device company based in Framingham, Mass., and Sydney, Australia, reported a better-than-expected loss for its first quarter on higher heart pump sales. Shares soared 14%.

Nuance Communications Inc. moved in the opposite direction after the Burlington, Mass.-based speech and imaging technology company reported weak quarterly results that sent shares down 18%. The newer 2.75% convertibles dropped about 5 points but outperformed the underlying shares. The older 2.75% convertibles dropped a more significant amount.

RTI International Metals Inc.'s convertibles "are pretty much doing what they are supposed to be doing" as the stock recovers from being shellacked after the convertibles deal earlier this month.

"If you like the old ones, you like the new ones," an East Coast-based buysider said of RTI. The newer RTI 1.625% convertibles traded at about 102.25 versus an underlying share price of $29.00 for the Pittsburgh-based producer of titanium mill products.

Overall, traders were focused on all the earnings reports coming out, sources said. Month-end window dressing wasn't' a significant factor, they said.

"The market in general seems pretty strong with any busted or yield names being well bid," a Connecticut-based trader said. A second trader concurred, saying that yield names had been well bid all month.

Meanwhile, a buysider said: "We've had so much earnings news; everyone is just keeping up with the news flow."

HeartWare expands

HeartWare's 3.5% convertibles due 2017 traded at 126 bid, 127 offered with the underlying shares at $96.00.

"The bonds are up about 2 points on a dollar-neutral basis and tracked on a delta of about 65% to 70%, a New York-based convertibles analyst said.

HeartWare shares gained $11.78, or 14%, to $97.20 on Tuesday.

HeartWare reported a net loss that narrowed to $12.9 million, or 87 cents per share, in the quarter ended March 31, compared to $18.8 million, or $1.33 per share, in the year-earlier period.

Net revenue jumped 87% to $49.2 million. Analysts had expected a loss of $1.20 per share on revenue of $39.7 million, according to estimates.

The company said that it sold 482 of its flagship HVAD pumps, which won approval from U.S. health regulators in November.

HeartWare had fantastic numbers, a market source said.

Newer Nuance looks fair

The new Nuance 2.75% convertibles due 2031 traded at 103.625 bid, 104.625 offered versus an underlying share price of $18.85, sources said. That was down about 5 points outright and didn't perform badly on a dollar-neutral, or hedged, basis.

The bonds were previously around 109 and traded down to a delta in the low 50% range from 55% to 70% previously, an East Coast-based buysider said.

"Using a credit spread of about 300 basis points over Libor and a 35% vol., at a 60% delta, the bond were about a point cheap yesterday, and today they are around fair value," the buysider said.

Older Nuance drops

Nuance's older 2.75% convertibles due 2027 traded down more dramatically.

The bonds fell to 117 on Tuesday from 133 on Monday.

One source put them at a 121 offer versus an underlying share price of $19.10 late Tuesday, compared to a 136 offer versus an underlying share price of $23.30 on Monday afternoon.

The delta came down on this issue to 60% to 62% from 70%, a source said.

"You rarely see a lot of these bonds trade; they are more illiquid," the source said.

The company's $500 million stock buyback program, announced concurrently with earnings, was not seen as having any impact on the bonds.

It's not a credit issue, the source said. "What the company used to spend on acquisitions, it's just going to spend on buying back shares, which is what you would expect to keep someone like Icahn at bay."

Billionaire investor Carl Icahn has gained a 9.3% stake in the company.

"If you want to look at the value of the company, you're not going to lose any sleep over the quarter," the source said. He said the drop on earnings was "bad news mixed with confusion."

Nuance shares gapped lower after missing earnings estimates. The shares lost $4.26, or 18%, to $19.04.

Before the market open Tuesday, Nuance posted fiscal second-quarter results well below estimates as product and licensing revenue declined and costs rose.

The company reported a net loss of $25.8 million, or 8 cents per share, for the second quarter, compared with a profit of $890,000 in the year-earlier period.

Excluding one-time items, the company earned 34 cents a share. Revenue rose 16% to $484 million. But analysts had expected an adjusted profit of 40 cents on revenue of $516.5 million.

Mentioned in this article:

HeartWare International Inc. Nasdaq: HTWR

Nuance Communications Inc. Nasdaq: NUAN

RTI International Metals Inc. NYSE: RTI

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.