High-yield sell-side technology analysts say it may be time for investors to bank some of the money they have made in the sector over the last few weeks, as revenues remain weak despite the recent bullish run of many bonds in the sector. Ziki Slav, analyst at Dresdner Kleinwort Wasserstein Grantchester, says he is likely to downgrade issues such as the Amkor 9.25% senior notes of '06 from "buy" to "hold". The issue was trading at 67 on October 7 when he put a buy on the name, and had climbed to 85 as of last Tuesday.
Amkor's third quarter was substantially stronger than the company's guidance and investor expectations, and liquidity is better than a quarter ago, Slav says. Still, sales are declining and guidance for the next two quarters is trending lower while the company is still very leveraged, he argues, concluding, "I don't see a lot of near-term upside potential." Slav is considering a similar downgrade for Avaya's single issue, the 11.25% notes of '09. Those bonds were trading at 63 on October 7 and had rallied to 84 as of last Tuesday.
Matt Zolin, technology analyst at Lehman Brothers, notes the Amkor senior notes have returned 30% on a total return basis in a month in which the Lehman high-yield index was down overall. "There's a natural tendency to take some chips off the table," he says. Nonetheless, Zolin continues to see value in Amkor's senior subordinated paper--the 10.5% notes of '09, which were trading at 72 last Tuesday. That price gave the bonds 575 basis points of additional yield versus the senior notes--an excellent pick up given that Amkor will generate over $200 million in EBITDA this year.