Covanta adds dollar neutral, shares higher; Volcano in line; Tesla active, slightly better

By Rebecca Melvin

New York, Nov. 4 - Covanta Holding Corp.'s convertibles jumped outright and added on a dollar-neutral, or hedged, basis on Monday after a positive article in Barron's on Sunday that said the Fairfield, N.J.-based waste disposal and renewable energy company is likely to keep growing because revenue is secured by long-term contracts and barriers to entry are high in the sector.

Volcano Corp.'s 1.75% convertibles due 2017 were also better outright and about in line on a dollar-neutral basis after news that the San Diego-based medical-device maker has caught the attention of activist investor Glenn Welling and his investment vehicle Engaged Capital LLC has taken a 5.1% stake in the company. Shares jumped $1.34, or 7%, to $20.29.

Tesla Motors Inc.'s convertibles were also active and in line to slightly better ahead of earnings expected from the Palo Alto, Calif.-based electric car maker on Tuesday and in continuation of about a 2-point expansion in in the past month.

Central European Media Enterprises Ltd.'s 5% convertibles traded in line on Monday, holding Friday's level at 88 bid, 88.635 offered even though the stock fell 20% from Friday's close, a trader said. Shares fell to $2.37.

MannKind Corp.'s 3.75% convertibles were trading close to 99 after changing hands at 98.25 bid, 98.375 offered on Friday after the Valencia, Calif.-based biopharmaceutical company reported a larger-than-expected loss in the third quarter on costs related to stock-based compensation. MannKind shares fell 22 cents, or nearly 5%, to $4.53.

Alpha Natural Resources Inc.'s 3.25% convertibles were up 0.5 point to 97 last, with the shares jumping 9% on Monday.

Alcatel-Lucent SA's convertibles were not heard in trade on Monday although the straight bonds of the company firmed on news that the telecommunications network equipment maker plans to raise about $2.7 billion in financing from the sale of new stock and debt.

Covanta adds dollar neutral

"Covanta's 3.25% convertibles due June 1, 2014 jumped to 119 bid, 119.5 offered versus an underlying share price of $18.20 on Monday. That was up from about 115 outright and better by about 0.375 point on a dollar-neutral basis.

"With the stock up 4%, I have the bonds up probably 0.375 point dollar neutral on a delta of about 80% to 85%," a trader said.

The bonds fell outright but expanded on a dollar-neutral basis with lowered guidance last week. "They had expanded about 1.5 points dollar neutral and now they have 0.375 point on top of that," the trader said.

Covanta shares gained 60 cents, or 3.4%, to $18.02 on Monday.

According to the Barron's article, barriers to entry in the waste-to-energy business are high and the company has a guaranteed revenue stream due to its long-term contracts, which are factors that are likely to keep the company growing for years.

Guidance was lowered Oct. 23, with the company citing slower-than-expected organic growth, lower-than-expected steam demand and unscheduled outages. But at that time, the company also said positive developments included a 20-year New York City waste contract and the acquisition of a Camden, N.J.-based energy-from-waste facility.

Volcano adds dollar neutral

Volcano's 1.75% convertibles due 2017 were seen at 96.5 bid, 97.5 offered with the shares at $18.20 Monday afternoon, according to a New York-based trader. That was up about in line on a dollar-neutral basis.

"Volcano is setting up here to be an interesting name," a New York-based trader said. "The stock is moving around a little bit, there are activist investors, and while it's not a cheap name, it cheap to the market."

The Volcano convertibles expanded last week when the stock dropped, and now with the stock going up, "the bonds should leak a little on the way up," the trader said. "There's no guarantee that it's going to," he said. "They look about in line [today]"

Tesla extends gains

Tesla's 1.5% convertibles due 2018 were quoted at 157.25 bid, 157.75 offered with the underlying shares at $173.00.

Tesla shares gained $13.03, or 8%, to $175.20.

The convertibles were called "up a little bit, dollar neutral." The bonds trade on an 85% delta.

"The stock was up quite a bit today as guys are trying to position before earnings," a New York-based trader said.

"They have been creeping higher and higher over the last several weeks and are up 2 points dollar neutral in the last month," the trader said.

Both Tesla's stock and convertibles gained in active trade ahead of the company's third-quarter results expected Tuesday. Analysts on average expect that Tesla will report that its revenue surged to $534.64 million and that earnings will be $0.11 per share, compared to a net loss of $0.92 per share reported for the same period last year.

Looking ahead to the current quarter, the forecast currently calls for sequential and year-over-year growth of both EPS and revenues. The full-year forecast calls for $0.61 earnings per share and revenue almost 431% higher than a year ago.

In August, second-quarter results revealed a surprising adjusted profit. It also beat its own sales goal by selling 5,150 Model S cars during the quarter, and the company expects recent gains in margins to help it meet its goal of 25% gross margin by the end of 2013.

Alcatel-Lucents SA NYSE: ALU

Alpha Natural Resources Inc. NYSE: ANR

Central European Media Enterprises Ltd. Nasdaq: CETV

Covanta Holding Corp. NYSE: CVA

MannKind Corp. Nasdaq: MNKD

Tesla Motors Inc. Nasdaq: TSLA

Volcano Corp. Nasdaq: VOLC

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