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The Week That Was In Converts (July 31)

The Week That Was

July 31 / George Lynch

If you dared take any time off this week to enjoy a bit of summer, you missed all the action … earnings action, that is. The technology sector dominated this week's headlines. However, there was enough to go around for everyone.

Among the technology companies reporting, there were few if any real surprises, either up or down on the earnings front. The laundry list meeting expectations with little-to-no fanfare included the following: Blucora (NASDAQ:BCOR), Citrix Systems (NASDAQ:CTXS), Electronic Arts (NASDAQ:EA), FireEye (NASDAQ:FEYE), InterDigital (NASDAQ:IDCC), Lam Research (NASDAQ:LRCX), NXP Semiconductors (NASDAQ:NXPI), Rovi Corp. (NASDAQ:ROVI), Shutterfly (NASDAQ:SFLY), SynchronossTechnologies (NASDAQ:SNCR) and Web.com (WWWW).

LinkedIn (LNKD) had plenty of fanfare. The stock shot up about 12% in a knee-jerk reaction to what appeared to be a beat. Too bad it didn't stay there. As someone once said, the devil was in the details. It turned out that strong performance from the recently acquired education site Lynda.com was concealing slowing growth in the company's core business. As we go to press the stock is down nearly 10% from last night's close and about 20% from the after-hours high. The good news is that the name continues to exhibit plenty of volatility, making the convertible an excellent way to play this developing story. We may well find it back on the traditional HOCS 20 next week.

Akamai Technologies (NASDAQ:AKAM) was the one technology company to manage a "miss" in the just-completed quarter. Moreover, the company is now guiding investors to slightly lower-than-expected results for the upcoming quarter. The culprit appears to be steadily rising costs tied to continuing investment in and preparation for the launch of "over-the-top" television streaming services. The company also plans to hike capital spending to larger-than-usual levels in preparation for this service launch. Still, the spending appears well-targeted and well-received by that market. That said, you won't be seeing Akamai's zero-coupon bonds on the HOCS 20 anytime soon.

On the healthcare front, DepoMed (DEPO) managed to beat both revenue and earnings estimates by a significant margin. Of course, DepoMed investors are primarily watching the progress of Horizon Pharmaceuticals' (NASDAQ:HZNP) hostile takeover bid. Hologic(NASDAQ:HOLX) also managed to beat expectations rather solidly. In fact, revenues recorded a solid 40% year-over-year increase, the result of strong new product sales. HealthSouth's(HLS) results were rather mixed, having beaten on revenues, however, missing in the earnings department.

Wright Medical (NASDAQ:WMGI) did beat out consensus revenue estimates on the heels of a significant acceleration in U.S. foot and ankle revenues and improvement in international sales. While earnings did disappoint, the miss appears to have had more to do with the build-out of the company's international infrastructure and increased R&D spending. While we've never been a huge fan of WMGI's convertibles, this is nothing to be overly concerned about.

However, in the negative column, The Medicines Company (NASDAQ:MDCO) recorded a significant decline in revenues and a wider-than-expected loss. The revenue and earnings shortfalls are overwhelmingly linked to customers delaying purchases in anticipation of the release of generic Angiomax, an anticoagulant often used to prevent blood clots during angioplasty. Better days ahead?

Next, we turn our attention to a pair of solar companies. On a positive note, Solar City(SCTY) managed to beat out revenue estimates in the quarter. While earnings came in below consensus, there doesn't appear to be anything here worth losing valuable beach time over, especially if the market's reaction this week is any guide.

However, that's not the case with SunPower (NASDAQ:SPWR). Revenues and earnings recorded whopping mid-30% declines. Management cited increased competition and foreign exchange exposure as the single greatest pressures. Of course, in an effort to make proverbial lemonade from lemons, the company highlighted its strategic asset acquisition program, a resulting increase in in capacity, as well as certain cost reduction initiatives as likely near-term drivers. So far, the market is saying "yea." Time will tell.

Last night, a Hillside favorite, Molina Healthcare (NYSE:MOH) (see Hybrid Vigor, January 12, 2015 and "Molina, Where You Going To" in Hybrid Vigor, June 1, 2015), reported a solid earnings beat. While headline revenues appeared light, the company cautioned analysts not to read too much into that and, while refusing to give new guidance, told the Street that business is generally better than expected. Analysts were impressed with the company's margins, and with disappointing performance in shares of managed-care companies involved in major M&A activity, Molina appears to be gaining favor as a stand-alone play. With several upgrades this morning, the shares are up about 12%.

Finally, the earnings onslaught continues all next week. It's a healthcare and biopharmaceutical heavy calendar. The list consists of the following: Air Lease (8/6), Alon USA Energy (8/3), Alere (8/4), Allscripts Healthcare (8/4), ANI Pharmaceuticals (8/4), Ariad Pharmaceuticals (8/5), Array BioPharma (8/3), BioMarin Pharmaceuticals (8/3), BroadSoft (8/3), Clean Energy Fuels (8/5), Clovis Oncology (8/6), Cornerstone OnDemand (8/6), Ctrip.com (8/3), EnerNOC (8/6), HomeAway (8/4), HSN Inc. (8/6), InContact (8/6), InvenSense (8/4), ISIS Pharmaceuticals (8/4), Jazz Pharmaceuticals (8/5), Ligand Pharmaceuticals(8/4), MGM Resorts (8/4), Sprint (8/4) and Tesla Motors (8/5).

That appears to be the list. Now, kick back and enjoy.

Disclaimer: A principal of Hillside Advisors has a position in Molina Healthcare.