Bear Stearns finds few short put convertibles yielding more than PerkinElmer

By Ronda Fears

Nashville, Tenn., July 19 - There just aren't many high-grade convertibles with short put dates that offer more yield than PerkinElmer Inc.'s, said Bear Stearns & Co. convertible analyst Sarah Gallagher in a report Friday.

"Having screened the universe, there are very few investment-grade converts with one year puts that offer a higher yield-to-put than the PerkinElmer convert," Gallagher said.

Bear Stearns is recommending the PerkinElmer 0% convertible senior notes due 2020 (Baa1/BBB-) to outright investors as a yield alternative with an equity-like return.

With bonds putable in one year, the investment-grade paper offers a compelling yield to put of 15.45%, she said, noting that the B component of the Bear Stearns high yield index yields 12.71%.

PerkinElmer converts have an implied spread of 1,343 basis points, she said, which is around 465 basis points wider than the yield-to-worst spread for the Bear Stearns high yield B index.

"We believe PerkinElmer has adequate resources to fund the convertible's put," Gallagher said, noting the total amount of the put is $443.5 million.

Moody's estimates that PerkinElmer's free cash flow through 2002 will be $80 million to $100 million, she pointed out, adding that the company also will have funds generated during the seven months from the beginning of the year to the August put date.

As of March 31, PerkinElmer had $170.4 million in cash and cash equivalents, she added, estimating cash on hand will be at least $600 million by year-end.

Also, the analyst noted that PerkinElmer recently completed the divestiture of its detection systems business, which it sold to L-3 for around $100 million with proceeds recorded in second quarter and the company is auctioning off its fluid sciences unit, which she believes will generate $300 million to $500 million in proceeds.

PerkinElmer has a $100 million revolving credit facility that expires in March 2006 and as of March 31 there was no amount outstanding.

No debt matures before the put date, either. PerkinElmer has only one other issue of public debt outstanding, $115 million of 6.8% bonds due 2005.

The analyst noted that PerkinElmer has been named in a class action lawsuit on behalf of purchasers of PerkinElmer securities between July 15, 2001, and April 11, alleging the company made materially false and misleading statements to the market.

"In the current environment, such shareholder suits are rampant and it is questionable whether such a suit will result in a monetary award to the plaintiff," Gallagher said.

"However, as the suit is pending, we feel investors should be aware of it."

Perkinelmer 0% due 2020

Price: 47.5

Conversion Premium: 387%

Common: $8.29

Conversion Price: $42.494

Delta: Not Meaningful

Yield to maturity: 4.17%

Yield to put: 15.45%

Put: Aug. 7, 2003

Put Price: 55.441

100-Day Volatility: 94%

Spread: 1,343 basis points over Treasuries

Credit Ratings: Baa1/BBB-

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