Morning Commentary: Wayfair convertible notes in focus as stock jumps post-earnings

By Abigail W. Adams

Portland, Me., Aug. 3 – It was another active start to the day in the convertibles secondary space on Thursday with earnings-related volatility driving trading volume.

Wayfair Inc. was the name of the day with the notes jumping outright in heavy volume as stock popped double digits on the heels of a large earnings beat.

The notes bucked the trend of the broader market, which remained week as selling continued to drag equity indexes down from their recent heights.

The Dow Jones industrial average was down 124 points, or 0.36%, the S&P 500 index was down 0.46%, the Nasdaq Composite index was down 0.36% and the Russell 2000 index was down 0.81% shortly before 11 a.m. ET.

There was $82 million in reported convertibles trading volume about one hour into the session with Wayfair’s convertible notes accounting for more than one-third of the total activity in the space.

The 3.25% convertible notes due 2027 jumped 18 points outright with stock up almost 20%.

The notes were changing hands at 156 versus a stock price of $86.39 early in the session, according to a market source.

The notes move on a theoretical delta of 88, a source said.

There was $12 million in reported volume.

Wayfair’s 1% convertible notes due 2026 gained 6.875 points outright. They were trading at 92.875 versus a stock price of $86.73.

The 1% notes trade on a theoretical delta of 57.5%, a source said.

Wayfair’s most recently priced 3.5% convertible notes due 2028 further solidified its position as one of the best performing new deals of 2023 and broke above double par.

The 3.5% notes jumped 29 points outright. They were seen at 204.75 versus a stock price of $84.63.

The notes trade on a theoretical delta of 93.5%, a source said.

There was $5 million in reported volume.

Wayfair priced a $690 million issue of the 3.5% notes at par in May.

Wayfair’s stock traded up to $87.47, an increase of 20%, shortly before 11 a.m. ET.

The home decor e-commerce company blew past analyst expectations to report a surprise profit.

Wayfair reported earnings per share of 21 cents versus analyst expectations for losses of 73 cents.

Revenue was $3.17 billion versus analyst expectations for revenue of $3.10 billion.

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