Delta returns to gains; Coeur d'Alene slips on merger; PDL falls, rebounds on earnings

By Kenneth Lim

Boston, May 3 - Delta Air Lines Inc. rose on its Wall Street return Thursday but fell short of the company's expectations amid broader cautiousness in airline stocks.

Coeur d'Alene Mines Corp. slipped slightly although sentiment remained positive after the company said it will almost double its common stock's free float in a merger with two other silver miners that will create the world's largest silver producer.

PDL Biopharma Inc. fell early in the day after it missed estimates despite reporting a narrower first-quarter loss and raising its 2007 outlook, but the stock recovered in the afternoon.

Delta higher in comeback

Delta Air Lines (NYSE: DAL) gained 1.5% or 32 cents to close at $20.72 on its first day of regular trading after returning from bankruptcy. It reached as high as $21.95 early in the day as positive sentiment in the run-up to its return carried over.

"It did OK," a trader said. "At least the sentiment earlier this week, when it was trading when issued, looks like it held. It may have been higher at the open and it's down about a point, but it looks like it's still up on the day."

Based on Thursday's closing price, Delta Air Lines currently has a market capitalization of just above $8 billion. The company had projected a market cap of about $10 billion. A rejected cash-and-stock takeover offer by U.S. Airways Group Inc. while Delta was still in bankruptcy had been valued at $9.8 billion. Delta is an Atlanta-based air carrier.

The trader said the stock's performance was dampened by a current lack of interest in airline names.

"I know there's a lot of skepticism about airline stocks in the market right now," the trader said. "But at least it looks like it's a little bit higher, which shows that they did OK."

But Prudential equity analyst Bob McAdoo wrote in a research note that Delta's current stock prices are "unsustainable." McAdoo has an underweight recommendation on the stock with a target price of $14.

Although Delta's restructuring has left the company in a better position with improved operations and 2007 earnings that are expected to be within the range of profitable legacy airlines, the implied valuation of the stock is too high, McAdoo wrote.

"We will review our rating once Delta's valuation is more consistent with the other legacy carriers," McAdoo wrote.

Coeur d'Alene slips on merger

Coeur d'Alene (NYSE: CDE) eased 3.7% or 15 cents on Thursday to close at $3.90 after the company said it will merge with two other silver miners to form the world's largest silver producer.

The mostly stock deal was valued at about $1.1 billion based on Wednesday's closing prices. Coeur d'Alene, Idaho-based Coeur d'Alene, which has almost 277 million shares outstanding at the moment, said it will issue about 271 million shares and cash to stockholders of Bolnisi Gold NL and Palmarejo Silver and Gold Corp. Coeur d'Alene will pay 0.682 of its own shares plus A$0.004 for each Bolnisi share, and 2.715 of its own shares plus C$0.004 for each Palmarejo share.

Bolnisi and Palmarejo currently own the Palmarejo Project in Mexico that is expected to produce 12 million ounces of silver and 110,000 ounces of gold annually once construction is complete. The project will nearly double Coeur d'Alene's current production to about 32 million silver ounces and 290,000 gold ounces in 2009.

Coeur d'Alene's 1.25% convertible due 2024 held flat to slightly higher at 90.5 against a stock price of $3.90.

"Honestly I don't follow it that closely because it doesn't ever do much," a sellside convertible analyst said. "I don't think it's that big of a surprise that the companies are seeking some kind of consolidation, but I think just the magnitude of the deal wasn't really expected."

"It looks like a pretty decent deal," the analyst said. "It looks like they're paying a premium for the other two companies, but when you look at the predicted resources they're adding through this deal the premium isn't that big."

"Silver prices also continue to be strong, and being a bigger player they'll be able to capitalize on price increases even more," the analyst said. "I would expect the shareholders to approve of the deal. They're really going to be in a better market position at the end of it with not much dilution on the stock."

The analyst said Coeur d'Alene's convertibles could be slightly better but are unlikely to be affected significantly by the deal.

"As a bigger company their spread could be a little tighter, so the converts could get a bit of a lift," the analyst said. "But unless the stock moves much higher you're not going to see anything major, and it looks like the way they structured it the stock isn't going to move that much."

PDL Biopharma swings on earnings

PDL Biopharma (Nasdaq: PDLI) closed at $25.51 on Thursday after its miss of estimates sent the stock lower early in the day, but bargain hunters helped the stock back above water in the afternoon.

"It wasn't a great quarter," a sellside analyst said. "But it wasn't exactly bad either. They missed estimates by a little, but the story is improving and they're looking at good growth for the year."

PDL Biopharma, a Fremont, Calif.-based biopharmaceutical company, reported a first-quarter net loss of $10.6 million, or 9 cents per share, from $26.2 million, or 23 cents per share, in the year-ago period. Excluding special items, the company earned 9 cents per share, below the 12 cents Street consensus estimate. PDL Biopharma expects 2007 adjusted earnings of $50 million to $70 million, or 42 cents per share to 58 cents per share. It had forecast full-year profit of $45 million to $65 million, or 38 cents to 54 cents per share, in February. Analysts were expecting 2007 earnings of about 53 cents per share.

"I think the key here is that they were able to raise their estimates for the year, which seems to suggest that some of their existing products are doing well," the analyst said.

"That's nice, but people are really looking out for some of their late-stage products that are in the pipeline and seeing how those do. Hopefully we can get some positive data over the next couple of quarters."

The analyst said recent shareholder pressure on the management to cut costs and replace chief executive Mark McDade does not seem to affect the stock much.

"Especially now, if the company is tracking for growth, I'd think that any proxy battle would be less compelling for the other shareholders," the analyst said. "Although it's often good to have management feeling like their job could be on the line."

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