NetApp adds on hedge after positive earnings; Clearwire expands; Equinix adds outright

By Rebecca Melvin

New York, Feb. 16 - NetApp Inc.'s convertibles gained on a hedged basis in active trade Thursday after the Sunnyvale, Calif.-based data storage company posted positive quarterly results that also drove the underlying shares higher by 7%.

The NetApp convertibles expanded about 0.375 point on a dollar-neutral, or hedged, basis after the earnings were posted, including a 0.25 point rise late Wednesday and a 0.125 point addition at the end of Thursday's session, a New York-based trader in the name said.

Also trading better after earnings - but the earnings were poor and the stock was lower - was Clearwire Corp.

Clearwire's 8.25% convertibles were said to have expanded by about a point on a hedged basis at midsession, even though on an outright basis, they were lower.

Also trading on earnings news was Equinix Inc. All three Equinix bond issues were active, even the one due April 15, 2012, as shares moved sharply higher on the data center operator's fourth-quarter results.

About $39 million of Equinix bonds changed hands during the session, running comparatively close to the volume of NetApp convertibles, of which $44 million of bonds traded, according to Trace data. But actual trading volume was significantly higher because Trace understates trading volume, sources said.

Molina Healthcare Inc. traded about 0.25 point better in active trade on Thursday, according to a New York-based trader around midsession, as the health care insurer's underlying shares maintained the higher trajectory that has been in place since the beginning of December.

NetApp expands

NetApp's 1.75% convertible notes due 2013 traded at 140.75 bid, 141 offered versus an underlying share price of $42.70 near the end of the session. That was higher compared to 130.25 bid, 140.50 offered versus a share price of $42.47 earlier in the session and better than 134.25 bid, 134.5 offered versus an underlying share price of $40.00 at the close Wednesday.

On Monday, several prints of the NetApp 1.75% convertibles went off right around 137 versus an underlying share price of $41.11 on a 75% delta.

On Thursday, shares of the Sunnyvale, Calif.-based data storage company jumped $2.86, or 7%, at $42.74. The stock gains accelerated into the close. Earlier it had been up 5%.

"It was the first quarter in a while that they put up some good numbers," a convertibles trader said about NetApp's earnings report.

The bonds had expanded 0.25 point immediately after the report was released late Wednesday. Then they opened flat from there on Thursday before adding another 0.125 point near the close on Thursday.

NetApp shares were up 1.9% in a weak market for equities and ahead of earnings posted after the close.

"The bonds have been heavy, and down about 0.5 point over the last week," a New York-based trader said.

The company posted a drop in fiscal third-quarter net income on higher costs, but the result and its outlook weren't as bad as some analysts had feared, and shares jumped 8% in after-hours trading.

For the quarter ended Jan. 27, NetApp posted earnings and revenue that were in line with expectations. It had net income of $119.6 million, or 32 cents per share, compared to $186.4 million, or 46 cents per share, during the same period the year before.

Revenue during the quarter was $1.57 billion, up from $1.29 billion in the prior-year period.

Looking ahead, adjusted earnings are expected to be between 60 and 65 cents per share, which is in line with the 63 cents per share that analysts were expecting.

The company said revenue should be between $1.65 billion and $1.73 billion in the quarter, which was tilting above the high end of expectations for $1.68 billion in revenue.

Clearwire expands

Clearwire's 8.25% convertibles due 2040 were trading during the session Thursday at 66 with the stock down 8% in the $2.16 range. The bonds were then seen at 66 bid, 67 offered, and the shares pared their losses, ending down 11 cents, or 5%, at $2.25.

Earlier in the session, shares of the Kirkland, Wash.-based wireless spectrum provider had traded down 35 cents.

Prior to earnings, the bonds were 67 bid, 68 offered, but the stock was higher, a Connecticut-based trader pointed out. "The bonds have expanded at least 1 point today, depending on the hedge."

The company reported revenues of $361.9 million for the fourth quarter, up 107% year over year. Total subscribers increased 140% during the quarter, ending at 10.5 million.

Net loss was $236 million, or 81 cents per share.

The company also provided guidance for 2012, stating expectations of $1.15 billion to $1.25 billion in total revenues. Capital expenditures were expected to amount to $450 million to $550 million.

Three Equinix bonds in trade

Equinix's 3% convertibles due 2014 traded at 133.5 versus an underlying share price of $134.01. That was a 3-point climb outright.

Equinix's 2.5% convertibles of 2012 traded at 120.277 versus an underlying share price of $134.07. That was higher by 4.3 points for the convertible paper that matures in two months.

Equinix's 4.75% convertibles due 2016 traded at 174.244 versus an underlying share price of $133.48.

Shares of the Redwood City, Calif.-based data center service provider jumped $6.45, or 5%, to $133.87. Earlier the shares had been up 6%.

"Initially after the earnings, the Equinix stock sold off. People had to get their arms around it," a New York-based trader said of the mediocre quarterly results.

The company said earnings per share rose 21% to 35 cents, but analysts had expected 44 cents, on average. Fourth-quarter EBITDA rose 33% to $198.1 million, and revenue of $431 million, which was up 25% from the same period a year earlier.

Looking ahead, Equinix sees revenue of $443 million to $446 million, which slips under the analysts' estimate of $446.6 million.

Adjusted EBITDA is expected to be $200 million to $205 million, which is in line with the $204 million forecast of analysts.

For the full year, Equinix sees revenue above $1.87 billion, and the consensus estimate had been $1.89 billion.

Photronics active

Photronics' 5.5% convertibles traded at 162 bid, 162.5 offered versus an underlying share price of $7.20, which was in line with previous levels.

"We traded it small," a New York-based trader said, indicating that it was a trade of under $1,000 of bonds.

Another odd-lot crossed at 161.78, with the stock at $7.24, a second trader said.

Photronics' 3.25% convertibles due 2016 were seen 100.625 bid, 101.625 offered versus a share price of $7.05.

Shares of the Brookfield, Conn.-based maker of semiconductor manufacturing components fell 25 cents, or 3%, to $7.28 after posting weak earnings. Earlier in the session, the Photronics stock had been down 5%.

The bonds are not that liquid and there are not a lot outstanding, a trader said of the 5.5% convertibles. But he noted that on the company's earnings conference call with analysts, management mentioned the 5.5% convertible issue and how it is trading at a premium to shares, so the company didn't want to use the cash that would be required to redeem the paper.

"They don't want to part with cash that would be required to take it out," the trader said.

Mentioned in this article:

Clearwire Corp. Nasdaq: CLWR

Equinix Inc. Nasdaq: EQIX

Molina Healthcare Inc. NYSE: MOH

NetApp Inc. Nasdaq: NTAP

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