Please ensure Javascript is enabled for purposes of website accessibility

Why Luminex Shares Are Tumbling 13.5% Today

By Todd Campbell - May 8, 2020 at 3:55PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The company's convertible bond offering is causing shares to slide.

What happened

Shares in Luminex Corporation (LMNX) are trading 13.5% lower as of 3:05 p.m. EDT on Friday after the company announced the pricing of its offering of $260 million of 3% convertible senior notes due 2025.

So what

The conversion rate on the healthcare company's senior notes is 22.8918 shares of common stock per $1,000 principal amount of convertible notes, which is equivalent to an initial conversion price of $43.68 per share. The offering is expected to result in net proceeds of $218.3 million, after fees and costs associated with bond hedges and warrant transactions designed to potentially reduce dilution associated with converting the notes into equity.

A test tupe with a label that reads "Covid-19"

Image source: Getty Images.

Luminex is using $34.7 million of the proceeds to pay for its hedges and the remaining money will go to its balance sheet for general use. The additional financial flexibility should help it as it launches new diagnostic products and rapidly expands capacity to address growing demand for COVID-19 testing. Exiting March, cash and equivalents totaled just $43 million.

In the first quarter, demand for Luminex's systems and assays for testing were driven by healthcare providers attempting to rule out COVID-19. The company launched its COVID-19 assay in March, and it expects to increase capacity from its current 500,000 tests per month to 800,000 tests per month by June.

Now what

Dilutive offerings aren't something investors love to see, but convertible notes can result in more favorable interest expense than other forms of debt. Therefore, the initial negative reaction to the notes offering may prove temporary, especially given Luminex recently raised its full-year revenue guidance because of demand for COVID-19 testing. Management didn't say exactly how much it expects in sales this year, but it did forecast that revenue will eclipse the top end of its previous outlook for sales of $362 million. For comparison, its total revenue in 2019 was $334.6 million.

 

Todd Campbell has no position in any of the stocks mentioned. His clients may have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Luminex Corporation Stock Quote
Luminex Corporation
LMNX

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
373%
 
S&P 500 Returns
122%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/10/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.