Tesla drops outright, narrowly mixed on hedge after disappointing earnings; Nvidia expands

By Rebecca Melvin

New York, Feb. 12 – Earnings were still packing a punch in the convertibles market on Thursday as late-season reports prompted sundry bonds to change hands even as many companies eyed the end of quiet periods and several, small-sized deals emerged.

Tesla Motors Inc.’s convertibles sank on an outright basis and were narrowly mixed on hedge after the Palo Alto, Calif.-based electric car maker posted disappointing earnings that sent its shares lower.

Nvidia Corp. was moving in the opposite direction with the 1% convertibles due 2018 up on an outright basis and expanding on hedge after the Santa Clara, Calif.-based graphics processor company posted an earnings beat.

Alpha Natural Resources Inc.’s convertibles gained with the underlying shares of the Bristol, Va.-based thermal and metallurgical coal producer up 4% to $1.24 on a narrower, fourth-quarter loss.

Incyte Corp. posted an earnings miss on both the top and bottom lines, but shares ended little changed, and sources queried hadn’t seen the convertible issues of the Wilmington, Del.-based biopharmaceutical company in trade.

In the new deal arena, Global Eagle Entertainment Inc.’s 2.75% convertibles due 2035 traded right around issue price, according to Trace data, after the Westlake, Calif.-based in-flight video and e-commerce company priced $75 million of the 20-year senior notes at the midpoint of coupon talk and beyond the rich end of premium talk.

Also pricing was a tiny $6 million issue of convertible preferred stock from Harvard Apparatus Regenerative Technology Inc. Shares of the Holliston, Mass.-based biotech company surged 69 cents, or 37%, to $2.58.

Meanwhile, Oclaro Inc. launched an offering of $55 million of five-year convertible senior notes early Thursday for pricing after the market close. The deal was talked at a 5.75% to 6.25% coupon and 25% to 30% initial conversion premium.

And internationally, Chugoku Electric Power Co. Inc. joined the calendar with an offering of ¥50 billion of three-year 0% convertible bonds. The Regulation S offering was expected to price at 102.5% of par and was talked to come at a premium of 15% to 25%.

Tesla mixed on hedge

The Tesla 0.25% convertibles due 2019, or the A tranche, traded at about 87.75 in the early going, which was down nearly 2 points on an outright basis, according to Trace data. But the bond contracted about 0.25 point on a dollar-neutral, or hedged, basis, a New York-based trader said.

The Tesla 1.25% convertibles, or the B tranche, were last seen at 83.88, which was down nearly 4 points on an outright basis, according to Trace. But the bond was unchanged on a dollar-neutral basis.

The Tesla 1.5% convertibles, the issue which was a volatility play on the earnings news, fell to 168.64 from 178.2, but up on swap by 0.25 point.

Tesla shares pared early losses to end lower by $9.92, or 4.7%, at $202.88.

Tesla’s results were hurt by customers being on vacation, severe winter weather and shipping problems, according to chief executive Elon Musk in a news release.

The earnings disappointment touched off a string of analysts’ comments.

JPMorgan downgraded Tesla to “underweight,” citing admirably lofty goals but raising concern about execution as the company grows and other car makers enter the electric car market.

Barclays reiterated its “equalweight” rating on the company’s shares but lowered its price target to $190 from $200 a share, citing issues, including weak sales in China and rising costs.

Credit Suisse also cut its price target on the stock to $290 from $325.

JPMorgan said that looking ahead, lower oil prices might be a headwind for the company.

Morgan Stanley remained “overweight” with a $280 price target and said that it expects the company to continue to focus on what it has been doing – hiring the best people in Silicon Valley, disrupting the auto industry and making customers happy.

In its fourth-quarter and full-year 2014 shareholder letter, Tesla said that it had built 11,627 vehicles in the fourth quarter and achieved its production target of 35,000 Model S vehicles in 2014.

Fourth-quarter results reflect a delivery shortfall, one-time manufacturing inefficiencies and the impact of the strong dollar, the company said in its shareholder letter.

Looking ahead, the company said it expects to deliver about 55,000 Model S and X vehicles in 2015, representing more than a 70% increase over 2014. About 40% of the deliveries are planned for the first half, with first-quarter production expected to be about 10,000 vehicles.

Nvidia expands

Nvidia’s 1% convertibles due 2018 gained in active trade, lifting to 121.85, according to Trace data, which was up 2.25 points on an outright basis and better on a dollar-neutral, or hedged, basis by 0.5 point, a Connecticut-based trader said.

Nvidia shares jumped $1.49, or 7%, to $22.30 on Thursday.

The Santa Clara, Calif.-based graphics processor company posted earnings of 36 cents per share for its fourth quarter, which was better than the consensus estimate of 24 cents per share.

Revenue rose 9% to $1.25 billion for the latest period, which also beat analysts’ estimates.

Alpha Natural up

Alpha Natural’s 3.25% convertibles, which mature in six months, traded up to just under 94 from 91.625 bid, 92.75 previously.

A trader put the new level at 93.50 to 93.75 at the close.

The Alpha Natural 3.75% convertibles, which are not due until 2017, were also active but in a much lower range that was also “up a touch,” a Connecticut-based trader said.

This 33.75% bond was at 37.125 bid, 37.5 offered at the end of the session.

The Alpha Natural 4.875% convertibles didn’t trade significantly and were unchanged.

Alpha Natural shares added a nickel, or 4%, to $1.24.

The coal producer said tighter cost controls helped it report a much smaller-than-expected fourth-quarter loss.

It lost $121.7 million, or 55 cents per share, in the most recent period, from a loss of $358.8 million, or $1.62 per share, in the year-earlier period.

Excluding one-time items, the company lost 50 cents a share, which was better than the 71 cents-per-share loss that analysts were expecting.

Last month, the company idled some its mines in West Virginia due to weak demand and low coal prices.

Looking ahead, the company has cut its 2015 capital expenditures outlook to $225 million to $227 million from $275 million to $350 million.

Mentioned in this article:

Alpha Natural Resources Inc. NYSE: ANR

Chugoku Electric Power Co. Inc. Japan: 9504

Global Eagle Entertainment Inc. NYSE: ENT

Harvard Apparatus Regenerative Technology Inc. Nasdaq: HART

Incyte Corp. Nasdaq: INCY

Nvidia Corp. Nasdaq: NVDA

Oclaro Inc. Nasdaq: OCLR

Tesla Motors Inc. Nasdaq: TSLA

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