Gilead lower outright, mixed on hedge; SunPower, Suntech Power edge up; RadioShack adds

By Rebecca Melvin

New York, Feb. 21 - The convertible bond market saw a lot of follow-through trading from Friday in Tuesday's session. The debt and equity markets were closed on Monday for the Presidents Day holiday.

Gilead Sciences Inc. remained active in trade with its two longer-dated issues better again by about 0.25 point on a dollar-neutral, or hedged, basis, while the shorter-dated 0.625% convertibles due 2013 traded in line. All three issues were lower on an outright basis.

There was also follow-through trading in SunPower Corp., and those convertibles edged up. The San Jose, Calif.-based solar power company released better-than-expected earnings and an outlook that was in line with expectations on Friday.

Meanwhile, fellow solar power company Suntech Power Holdings Co. Ltd. also extended gains.

Earnings news pulled a few other names into trade on Tuesday. RadioShack Corp. was firmly bid and added as much as a point despite weak fourth-quarter earnings for the Fort Worth, Texas-based electronics retailer, and which sent the underlying shares down 8%.

Chesapeake Energy Corp. saw trading in its convertible issues, which were better for the most part, ahead of the Oklahoma City-based natural gas company's fourth-quarter earnings due to be released after the market close.

But the convertibles of Medtronic Inc., which reported third-quarter earnings that were in line with expectations, were uncharacteristically quiet, traders said.

All in all, the convertible bond market was said to have put in a pretty quiet day with February school holidays cited for taking some players' focus away from the markets, they said.

Equities were mostly higher during the session Tuesday as they were on Friday, but they ended little changed with the Standard & Poor's 500 stock index up nearly a point at 1,362.21. The CBOE Volatility index moved up just a touch to 18.19, which was 0.4 point higher. Its 52-week high was 48.00, and its 52-week low was 14.27.

Gilead mostly adds on hedge

Gilead's 1% convertibles due 2014, or the C convertibles, were lower outright but higher by about 0.25 point on a dollar-neutral basis, trading last at about 117.5, which was down compared to 120.5 on Friday.

Shares of the Foster City, Calif.-based biopharmaceutical company ended down $2.31, or nearly 5%, at $44.69 in heavy volume.

Gilead's 1.625% convertibles due 2016, or the D convertibles, were also lower outright, but higher on a dollar-neutral basis by about 0.25 point.

The Gilead Ds went out at about 123 versus the underlying $44.69 share price, compared to 125.75 versus a share price of $47.07 in morning trade Friday.

Meanwhile, Gilead's shorter-dated 0.625% convertibles due 2013, or the B convertibles, which together with the Gilead Cs, were the most actively traded of the three issues, fell to 125.5, down from 128 on Friday and down from 146 on Thursday.

The Gilead Cs were not better on Tuesday but traded in line on a hedged basis, a New York-based trader said.

On Friday, all three issues were lower outright but better by 2 to 3 points on a dollar-neutral basis.

The moves were based on negative news on a study of its hepatitis C drug: in an ongoing study, the majority of patients, who previously had not responded to a traditional therapy of interferon-containing drugs, experienced a viral relapse within four weeks of completing a 12-week treatment with Gilead's GS-7977.

The small study of patients that failed to respond to either treatment isn't the last word on Gilead's GS-7977 drug. There will be more news on the drug's development in the next two months.

SunPower, Suntech Power add

SunPower's 4.75% convertibles due 2014 traded up about 0.5 point outright to 94 bid, 94.5 offered from 93.5 bid, 94 offered on Friday.

SunPower shares rose another 48 cents, or 6%, to $8.61 after gaining 9% on Friday.

This name "looked a little better," a trader said, "probably following-through on earnings last Friday."

Meanwhile, Suntech Power's 3% convertibles due 2013 traded up another 1 point to 1.5 points, to 77 bid, 77.5 offered, after trading at 75.75 bid, 76.25 offered on Friday.

Suntech Power shares gained 4 cents, or 1.1%, to $3.69 on Tuesday, after jumping 27 cents, or 8%, at $3.64 on Friday.

There didn't appear to be any news on the Chinese solar panel maker, but the company raised its guidance last week.

SunPower reported on Friday that it lost money during the quarter, but after one-time items like restructuring charges and stock-based compensation, it earned more than analysts had expected.

RadioShack edges up

RadioShack's 2.5% convertibles due 2013 ended the session on Tuesday at 96 bid, 96.25 offered, a New York-based trader who is active in the name said. That was higher compared to 95 last week.

Shares of the electronics retailer fell 62 cents, or 8%, to $7.26 in stronger-than-average volume.

RadioShack "continues to move up despite earnings," the trader said of the name that doesn't trade on hedge.

RadioShack reported much weaker quarterly numbers, which were in line with lowered guidance in January.

Net income for the quarter ending Dec. 31 was $11.9 million, or 12 cents a share, compared to $57 million, or 51 cents a share, in the year-earlier period. The company lowered its forecast for earnings to 11 cents to 13 cents in January.

Sales rose 6% to $1.29 billion, compared to $1.31 billion a year ago, and matching analysts' expectations. But the company said that increasing sales of tablets and smart phones are hurting its profitability because it keeps less of the revenue from those sales as profit than from other products.

In addition, same-store sales fell, but total sales were offset by the rollout of Target Mobile locations.

Chesapeake flat to higher

Chesapeake's 2.5% convertibles due 2037 traded in line with previous levels at 91.625 bid, 91.75 offered.

"That was in line with where it was," a New York-based trader said of the issue that sometimes trades outright, sometimes on a delta. But on Tuesday, the stock barely moved, he noted.

The Chesapeake 2.25% convertibles due 2038 traded around 80 and the Chesapeake 2.75% convertibles due 2035 looked a little better, trading at 99 bid, 99.5 offered, which was up about 0.375 point, he said.

Chesapeake shares slipped 9 cents, or about a third of a percentage point, to $24.62 during the session, but after the company reported fourth-quarter earnings after the market close, they rose about 1% in after-hours trade.

Chesapeake reported fourth-quarter net income of $429 million, or $0.63 per share, compared with $180 million, or 28 cents per share, in the same period a year earlier.

Excluding items, Chesapeake had a profit of 58 cents per share, which compared to analysts'expectations of profit of 59 cents per share

Mentioned in this article:

Chesapeake Energy Corp. NYSE: CHK

Gilead Sciences Inc. Nasdaq: GILD

RadioShack Corp. NYSE: RSH

SunPower Corp. Nasdaq: SPWR

Suntech Power Holdings Co. Ltd. NYSE: STP

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