EMC extends losses ahead of earnings; Amgen, Boston Properties little changed; UAL drops

By Rebecca Melvin

New York, Jan. 25 - Investors continued to sell large, investment-grade convertibles Monday, while less-liquid bonds were mixed depending on issue-specific news and earnings news, market participants said.

"There's still more selling in big names, while the less liquid stuff is story by story," a West Coast-based sellside trader said.

EMC Corp. traded down Monday, amid a small sell-off in the underlying shares and ahead of earnings expected Tuesday. Also Chicago-based Citadel Investment Group was supposed to have sold a chunk of the EMC paper, according to a New York-based sellsider.

Amgen Inc. convertibles traded little changed ahead of the biotech company's fourth-quarter earnings report, which was posted after the market close showing slightly higher earnings that were a little below than expectations.

Boston Properties Inc. was also little changed ahead of earnings news seen Tuesday.

Medtronic Inc. was weaker in trade, despite news that the medical device company received regulatory approval for the first heart valve that can be implanted without open heart surgery and that it is acquiring Invatec, a European rival, for $500 million.

UAL Corp. convertibles dropped 10 points also ahead of earnings reports in the sector expected this week.

Meanwhile, Beazer Homes USA Inc.'s new 7.5% mandatory convertibles traded down Monday, changing hands at 22.75 versus a share price of $4.10 on Monday, compared to 24.4 versus a share price of $4.45 on Friday. On Jan. 7, the Beazer mandatories were trading at high as 27.4 outright.

Volume overall was light, with about $600 million of bonds changing hands, a West Coast-based sellsider said.

"There weren't a lot of surprises," he said. Convertibles were trading around events like earnings. There was also talk of some hedge funds "shopping blocks" of convertibles due to the need to sell to return funds to investors.

Large blocks including EMC paper and Gilead Sciences Inc. were being shopped, he said.

EMC extends losses

EMC's 1.75% A series convertibles due 2011 traded at 117.85 versus a share price of $17.00, according to a New York-based sellside desk analyst. And according to Trace it changed hands at 116 late in the day. That number was down about 4 points from Friday's levels.

The EMC 1.75% B series convertibles due 2013 traded around 113.

Shares of the Hopkinton, Mass.-based data storage company ended up 18 cents, or 1%, at $16.94.

The company was expected to report fourth-quarter earnings ahead of the market open on Tuesday. For its third quarter, EMC beat analysts' estimates, helped by cost-cutting efforts and a more confident IT spending environment.

The EMC convertible paper has slid from levels in the mid 120s up to nearly 130 for the 2013 convertibles. It was among recently shopped large blocks of convertibles that were sold to reduce the position of hedge funds including Citadel, sellsiders said.

Amgen little changed

Amgen's 0.125% convertibles due 2011 traded at 99 versus a share price of $56.60 on Monday, according to a New York-based sellside desk analyst. The paper was also seen trading at 98.75, which was unchanged compared to Friday.

Amgen's 0.375% convertibles due 2013 traded at 98.85, which was up 0.25 point, according to Trace data.

Shares of the Thousand Oaks, Calif.-based biotech company shed 89 cents, or 1.6%, to $55.7 on Monday, and shares rose slightly in after-hours trading after the company reported a slight quarterly gain that missed estimates.

The company posted fourth-quarter earnings of $931 million, or 92 cents a share, up from $925 million, or 87 cents a share, a year earlier. Excluding items such as costs associated with acquisitions and stock compensation, per-share earnings slipped to $1.05 from $1.06. Analysts were expecting a per share earnings level of about $1.12 or $1.13.

Revenue rose 1.5% to $3.81 billion. Analysts were expecting revenue of $3.85 billion.

But Amgen's 2010 outlook seemed to cheer investors. For 2010, Amgen projected adjusted earnings of $5.05 to $5.25 a share on revenue of $15.1 billion to $15.5 billion. Analysts expect earnings of $5.12 a share on revenue of $15.31 billion.

For the fourth quarter, U.S. product sales were down 1%, while international sales rose 11%, or 7% excluding currency changes. Worldwide sales of Aranesp fell 8% as weaker demand and unfavorable changes in wholesale inventories took their toll, but Epogen sales grew 9% on stronger demand. The drugs' sales have been hurt since an FDA panel in 2008 recommended curbing their use because of concerns the drugs speed cancer tumor growth and shorten survival times.

Sales of rheumatoid-arthritis drug Enbrel, sold by Amgen in North America and by Wyeth Inc. elsewhere, fell slightly.

Medtronic slips amid favorable news

Medtronic 1.5% convertibles due 2011 traded at 99.25 on Monday, which was down 1.75 points from Friday's levels.

Medtronic 1.625% convertibles due 2013 traded at 102.75, which was down 0.75 point. Shares of the Minneapolis-based medical device maker - the world's largest - added 75 cents, or 1.7%, to $44.05 on Monday.

The company announced the Medtronic Melody Transcatheter Pulmonary Valve and Ensemble Delivery System, the first approved heart valve to be implanted through a catheter, or tube, in a leg vein and guided up to the heart.

This new approach to the treatment of adults and children with previously implanted, poorly functioning pulmonary valve conduits can delay the need for open-heart surgery.

Patients currently receive replacement valves that can break down over time, requiring multiple heart surgeries to replace them. Medtronic's device is implanted using a small catheter that is inserted through an incision in the leg, postponing the need for surgery.

In addition, Medtronic announced it would pay up to $500 million to acquire Invatec, a company that makes stents and balloons used to treat cardiovascular disease. Medtronic agreed to pay $350 million initially, plus $150 million in payouts if Invatec receives approval for certain experimental devices, including drug-coated balloons used to prop open arteries during surgery.

UAL drops

UAL's 6% convertibles due 2029 dropped about 10 points to 161.9 on Monday, compared to Jan. 14 when the paper was 175.5 versus a share price of $13.75.

Shares of the Chicago-based air carrier fell Monday by 33 cents, to $12.88 from $13.21.

The carrier will report earnings on Wednesday. During the fourth quarter, UAL shares jumped 40%, from $9.22 to $12.91, as investors bet that the airline would be helped by an economic recovery. For comparison, the Amex Airline Index, which includes United, rose 17.4% during the same period.

Meanwhile, Continental Airlines Inc.'s 4.5% convertibles traded at 119 versus a share price of $19.65 on Monday. Continental was upgraded to a "buy" from "sell" by Argus, which reverses Argus' call two months ago on Nov. 24 when it downgraded Continental to "sell" from "buy."

Mentioned in this article:

Amgen Inc. Nasdaq: AMGN

Boston Properties Inc. NYSE: BXP

Beazer Homes USA Inc. NYSE: BZH

Continental Airlines Inc. NYSE: CAL

EMC Corp. NYSE: EMC

Gilead Sciences Inc. Nasdaq: GILD

Medtronic Inc. NYSE: MDT

UAL Corp. Nasdaq: UAUA

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