By Rebecca Melvin
New York, Nov. 28 - Electronic Arts Inc.'s convertibles traded Monday at levels still a little weaker compared to early last week before a slide in the underlying shares of that name, but the convert pricing faded slightly going into the market close, along with the broader markets, market sources said.
At the open, shares of the Redwood City, Calif.-based video game maker's underlying shares popped with an upgrade to "buy" from Citigroup and along with a rally in the broader markets, which were relieved by stronger-than-expected Black Friday holiday sales data and promising headlines out of Europe regarding a potential debt crisis solution.
Lennar Corp.'s new 3.25% convertible bonds, which priced last Tuesday, were a little stronger at 100.5 compared to the trading debut of the Miami-based homebuilder's new issue at par.
Convertible market trading volumes weren't impressive, although that is often the case on a Monday and only more so following the unofficial advent of the holiday season following Thanksgiving last week.
"People were just getting back," a Connecticut-based trader said about Monday's light volume.
A second trader said overall convertibles market activity still felt muted and "far less than what most consider normal, healthy volumes."
By mid-afternoon, there were only about $400 million of convertible bond sales recording to Trace data. A year ago, Trace volume would have been two to three times that amount, the trader said.
Action in some of the larger, busted, non-investment-grade names was mixed. Alcatel Lucent SA's 2.75% convertibles due 2025 were down about 0.75 point at 88, but Hologic Inc. was up 0.5 point.
There was also notable trading action in a couple of special situations. PMI Group Inc.'s convertibles traded for the first time since the Walnut Creek, Calif.-based mortgage insurer declared bankruptcy. The paper changed hands in the 22.5 bid, 23 offered context.
In addition, Clearwire Corp. traded at 32, which was a little better compared to last week, when pricing dipped into the upper 20s, but the paper was trading flat, or without accrued interest.
Retail numbers surrounding the Black Friday shopping spree came in better than estimated, and those strong sales were attributed with sending equities upward.
This season's Black Friday was the best since 2007, according to Shopper Trak, due to aggressive pricing by retailers, better weather than last year and earlier store hours.
The Dow Jones industrial average climbed 291 points, or 2.6%, to 11,523.01; Standard & Poor's 500 stock index jumped 39 points, or 2.9%, to 1,192.55; and the Nasdaq Stock Index surged 86 points, or 3.5%, to 2,527.34.
Electronic Arts trade weaker
Electronic Arts' 0.75% convertibles due 2016 traded at 97 versus an underlying share price of $20.85 early Monday, compared to 99 versus a $21.85 share price last Wednesday. Later, the Electronic Arts convertibles faded a little, to trade at about 96.75.
The sizable $632.5 million deal priced in July.
Shares of the Redwood City, Calif.-based video game maker gained $1.26, or 6%, to $22.09 in average volume.
Citigroup put out a note upgrading the video game maker to "buy on attractive valuation" from "neutral," given that shares were down significantly from recent highs and on expectation that investors would boost the shares after the positive Black Friday data.
Given that Electronic Arts shares have pulled back 17% since early October, the Citi analysts view this as an attractive entry point, where the reward appears greater than the risk.
Citi analysts Neil A. Doshi and Mark S. Mahaney didn't change their share price target of $26.00 per share, however.
Citi's retailing/hardlines analyst Kate McShane found that video games was among the more popular items that sold at Best Buy stores in the New York area during Black Friday, as per a number of channel checks.
In addition to positive Black Friday trends - Shopper Trak says sales on the day after Thanksgiving increased 6.6% year over year, which was much better than 2010's 0.3% growth. Citi believes the new Star Wars MMO could be a "modest positive" for Electronic Arts next year, and the analysts also like the fact that the company participates in all forms of online game development and distribution, according to the Citi research note.
Alcatel Lucent declines
Alcatel Lucent's 2.75% convertibles due 2025 traded at 88 bid, 88.25 offered, which was down 0.75 point from previous levels, sources said.
In contrast, the America Depositary Shares of the Paris-based telecommunications company gained 7 cents, or 4.6%, to $1.61 in Monday trade.
"It's been for sale for the last week," a Connecticut-based trader said of the convertible bonds.
"Anyone who doesn't want any exposure to Europe would look for an opportunity to get rid of them," the trader surmised regarding what was behind Monday's move in that convertible paper.
Mentioned in this article:
| Alcatel Lucent: | NYSE: ALU
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| Clearwire Corp. | Nasdaq: CLWR
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| Electronic Arts Inc. | Nasdaq: ERTS
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| Hologic Inc. | Nasdaq: HOLX
|
| Lennar Corp. | NYSE: LEN
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| PMI Group Inc. | Pink sheets: PPMIQ
|
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