Convertibles in line on light volume; Liberty/Charter active; Toll Brothers, Dycom eyed

By Rebecca Melvin

New York, Aug. 23 – U.S. convertibles traded in line with stocks on light volume on Tuesday, as the dog days of summer dragged on, market players said.

“The dog days of summer are definitely upon us,” a New York-based trader said.

The last two weeks of August are typically the quietest part of the year in both in the United States and internationally as many people fit in vacations and travel before business gears up again in September.

Liberty Interactive LLC’s 1.75% debentures exchangeable for Charter Communications Inc. stock, which debuted in the convertibles market last Thursday, was among the most actively traded issues of Tuesday’s session. The paper looked to have traded off a bit, changing hands at 102.03, which was down from 103 to 103.5 on Thursday. Charter’s common stock, on which the pricing of the debenture is based, ended down 0.2% to $252.24 on Tuesday. That was off a little from its $254.83 market close on Thursday and compared to its $252.63 market close on Friday.

Elsewhere, HeartWare International Inc.’s convertibles traded right around par as shares were delisted as expected with the Medtronic plc acquisition of the Framingham, Mass.-based medical device maker announced in June. The HeartWare bonds traded little changed around par, a trader said.

Related to earnings news, Toll Brothers Inc. traded in line with the underlying common shares of the Horsham, Pa.-based home builder, which gained 9%.

They were “decent earnings,” a trader said of Toll Brothers’ results.

Toll Brothers’ 0.5% convertibles due 2032 traded at 98.4 during the session and was called 98.5 bid, 99 offered near the market close compared to $31.91 for the stock, which was up more than $2.50 on the day.

“The bonds are pretty boring,” a trader said of the Toll Brothers convertibles. “It’s a yield to maturity play. There is no delta and the bonds traded in line. It was not very exciting.”

For the quarter ended July 31, Toll Brothers posted earnings of $105.5 million, or 61 cents a share, up from $66.8 million, or 36 cents a share, in the year-earlier period.

Revenue rose 24% to $1.27 billion. Analysts had expected revenue of $1.25 billion and earnings per share of 61 cents.

Looking ahead, Toll Brothers narrowed its annual revenue guidance to $4.96 billion to $5.27 billion from a previously forecasted $4.76 billion to $5.36 billion. Analysts had been expecting $5.04 billion.

The second-quarter results were broadly better, with every region showing contract growth, and its backlog rose 19% as contracts rose 13%.

Dycom Industries Inc.’s 0.75% convertibles due 2021 traded up 1.6 points to 116.7, according to Trace data. That was against shares that were up 64 cents, or 0.7%, to $91.94 for the session and ahead of earnings expected to be released after the market close.

The Dycom report pushed shares down $4.18, or 4.6%, in after-hours action.

For the period ended July 30, which is the end of its fiscal year, the Palm Beach Gardens, Fla.-based provider of specialty contracting services reported organic contract revenue growth of 20% for the quarter.

Looking ahead, Dycom reported that the recently acquired operations of Goodman Networks are now expected to produce lower revenue in fiscal 2017 than initially anticipated, but higher EBITDA margins sooner than initially anticipated.

The broader markets were calm with the major equity indices fractionally higher, continuing their slow grind higher, as many investors believe that rates will remain lower for longer. Meanwhile The Chicago Board of Options Exchange VIX, which measures the potential for volatility, whipped around to end higher by 0.9% to 12.38 after trading lower by about 2.5% in the early going on Tuesday.

Some names in the energy sector turned upward as oil prices reversed early losses amid reports that Iran may be willing to cooperate with other producers that are seeking to freeze output. Crude oil prices were up more than 1% after a Reuters news report on Iran’s potential cooperation, and reversed earlier losses of more than 1%.

West Texas intermediate crude oil for October delivery rose 60 cents, or 1.3%, to $48.01 per barrel on the New York Mercantile Exchange after dropping 1.7% earlier.

But energy names were not a feature of convertibles trade. Amid a tear in natural gas prices, Chesapeake Energy Corp.’s 2.5% convertibles due 2037 remained untraded and were last at 99.30 while the underlying shares of the Oklahoma City-based oil and gas company rose 6% to $6.46.

Mentioned in this article:

Charter Communications Inc. Nasdaq: CHTR

Chesapeake Energy Corp. NYSE: CHK

Dycom Industries Inc. NYSE: DY

HeartWare International Inc. Nasdaq: HTWR

Liberty Interactive Inc. Nasdaq: QVCA

Toll Brothers Inc. NYSE: TOL

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