Nabors falls with oil prices; Electronics for Imaging brightens with upgrade; Lucent still weak on forecasts

By Kenneth Lim

Boston, July 17 - The convertible bond market was quiet but still busier than expected for a summer Monday, with oilfield contractor Nabors Industries Ltd. falling outright as oil prices retreated from recent highs.

Meanwhile, Electronics for Imaging Inc. got a boost from its stock, which was upgraded by Citigroup ahead of its Wednesday results announcement.

Lucent Technologies Inc. continued to weaken slightly on disappointment over its earnings forecast, which fell short of estimates when it was released a week ago.

Audiocodes Ltd. and Teva Pharmaceutical Industries Ltd. saw early gains but ended largely flat in line with their stocks as Israel plays continued to be dampened amid escalating violence in the Middle East.

The convertible bond market was slow on Monday, although investors saw more activity than they expected for a scorching summer day.

"It's pretty busy, actually," a sellside analyst said. "Considering how hot it is outside."

Also seen trading on Tuesday was Amylin Pharmaceuticals Inc.'s 2.25% convertible due 2008, which slid about two points outright ahead of its results announcement. The convertible traded at 151.75 versus a stock price of $47.75, while Amylin stock (Nasdaq: AMLN) declined 0.99% or 48 cents to close at $47.81. Amylin, a San Diego, Calif.-based drug maker, will report its second-quarter results on July 24.

Low-cost carrier JetBlue Airways Corp. improved slightly on an outright basis as oil prices eased from the previous week's record highs. JetBlue's 3.5% convertible due 2033 changed hands at 90.25 against a stock price of $10.625, while its 3.75% convertible due 2035 traded at 92 versus the same stock price.

But the change was simply a reflection of gains made by the shares of Forest Hills, N.Y.-based JetBlue, a sellside trader said.

"On a dollar-neutral basis it hasn't changed much," the trader said. "The credit's still the same."

Nabors slips with crude

Nabors Industries' zero-coupon convertible due 2023 shed about two points outright on Monday as oil prices eased from record highs reached the week before.

The convertible traded at 104.5 against a stock price of $30.50 on Monday. Nabors stock (NYSE: NBR) dropped 4.26% or $1.36 to close at $30.53. Nabors is a Bermuda-headquartered land drilling contractor.

"Oil prices came down, the stock was down, that's all there is to it," a convertible bond trader said.

A barrel of U.S. light crude oil settled at $75.30 a barrel on Monday, about 2.2% or $1.73 below Friday, when prices reached as high as $78.40 a barrel. Analysts said the correction came amid relief that the tense conflict between Israel and Hezbollah guerillas in Lebanon had not spread to other Middle Eastern countries.

But the continuing violence in the region is likely to keep oil plays volatile in the near future, the trader said.

"It's always been a volatile sector," the trader said. "Although most of the converts are quite equity sensitive."

Electronics for Imaging brightens

Electronics for Imaging lit up on Monday as the stock jumped on an upgrade by Citigroup ahead of its results announcement.

The company's 1.5% convertible due 2023 was more than 3 points better outright on Monday, trading at 100.125 versus a stock price of $9.40. Electronics for Imaging stock (Nasdaq: EFII) climbed 6.05% or $1.20 and finished at $21.03.

"The stock's up quite a bit today," a sellside convertible bond analyst said.

Citigroup equity analyst Matthew Troy on Monday upgraded Electronics for Imaging stock to a buy, citing current cyclical weakness. The stock is currently languishing in the doldrums over concerns that Canon, a major customer, may slow introductions of new products, the analyst wrote in a note. But the product cycle remains solid on a longer term, the analyst said. Electronics for Imaging is a printing hardware and software maker.

"We see Electronics for Imaging as a technological enabler, which sits at the nexus of the broader multiyear trend toward growth in color and the adoption of high-end digital printing into the graphic arts and commercial print industries," Troy wrote.

Troy expects Electronics for Imaging to meet expectations when it reports its third-quarter results on Wednesday.

The convertible analyst said Electronics for Imaging's convertible is "kind of in the sweet spot" at the moment.

The convertible has almost two years of call protection remaining, and the premium has come in slightly recently, the analyst noted.

"It's probably a name that some hedges have been setting up, I would think," the analyst said. "We've heard a little bit of traffic in it, but nothing big."

"It doesn't look too bad now," the analyst said.

Lucent slips further

Lucent's 2.75% convertible due 2025 was weaker by about 1 point on an outright basis on Monday amid week-old disappointment over the company's earnings guidance.

The convertible traded at 92 against a stock price of about $2 on Monday. Lucent stock (NYSE: LU) was down slightly by 0.97% or 2 cents, closing at $2.04.

"They gave poor guidance last week, but I haven't heard anything today," a buyside convertible bond trader said.

Lucent said late July 10 that it expects sales of about $2.04 billion for its third fiscal quarter, which ended in June. That was 13% below revenue from the year-ago period. It also said earnings per share for the quarter would be 2 cents, down from the 7 cents per share earned in the same quarter a year ago. But sales are expected to improve in the fourth quarter.

Lucent stock has fallen about 12% since the new forecast was given.

Lucent is a Murray Hill, N.J.-based telecommunications equipment provider.

Israel plays dampened

Israel-based Audiocodes and Teva Pharmaceutical convertibles were flattish on Monday as their stocks continued to languish from the previous week's declines amid continued violence in the Middle East.

Audiocodes' 2% convertible due 2024 changed hands at 86.75 against a stock price of $9.40. Shares of Audiocodes (Nasdaq: AUDC), a telecommunications network solutions provider, improved 0.21% or 2 cents to close at $9.45 on Monday.

Teva's 0.5% convertible due 2024 traded at 100.5 versus a $30.50 stock. The generic drug maker's shares (Nasdaq: TEVA) closed at $30.55, up modestly by 0.16% or 5 cents.

Violence erupted on July 12 between Israel and Lebanese Hezbollah militia when Israel retaliated for the kidnapping of two soldiers by Hezbollah, and escalated into fierce bombings and rocket attacks over the weekend.

"It's still not clear how this is going to play out," a sellside trader said.

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