What are the potential scenarios for conversion of the notes before maturity and their effect on earnings per share?

Conversion scenarios

The 0.625 % convertible senior notes due 2030 carry a conversion price that is typically set 15‑25 % above Euronet’s closing price at pricing (roughly $ 30‑$ 35 per share, based on the $ 25‑$ 28 range the stock has traded in the past 12 months). Three outcomes are realistic before 2030:

1. No conversion – price stays below the conversion trigger. The notes remain on the balance‑sheet, the company continues to enjoy ultra‑low financing cost (≈ $ 5 m annual interest) and the current share count stays unchanged. EPS is unaffected by dilution; the only impact is the small interest expense, which already depresses net income marginally.

2. Voluntary conversion – stock rallies above the conversion price. Holders will exchange debt for equity when the market price exceeds the conversion price by a comfortable margin (typically > 10 %). The conversion would retire up to $ 850 m of debt, erase the 0.625 % interest charge, and add roughly 24‑28 m new shares (assuming a $ 33 conversion price). The net‑income boost from zero interest is modest (≈ $ 5 m), but the dilution of earnings across the larger share base can be more material. For a steady‑yearly net income of $ 150‑$ 170 m, EPS would move from roughly $ 3.80 to $ 3.55‑$ 3.65, a slight downgrade unless the price appreciation that triggered conversion also lifts operating margins.

3. Forced redemption / “make‑whole” call. The prospectus typically allows Euronet to redeem the notes before conversion at a premium (often 2‑3 % plus accrued interest). If the company elects this route, cash outflows increase, but the debt is eliminated without share issuance, preserving the current share count and EPS. The call would be attractive if the stock is trading far above the conversion price, making conversion economically inevitable for note‑holders.

Trading implications

• Monitor the $30‑$35 conversion zone. A sustained breach of this range on high volume, especially on an up‑trend (e.g., closing above the 50‑day MA with bullish RSI), raises the probability of conversion and imminent dilution. In that environment, a short‑term “sell‑the‑news” bias may be appropriate, with a stop just below the breakout level to avoid being caught in a rally.

• If the price stalls below the trigger, the notes act like low‑cost debt. The market will price Euronet’s credit risk at a slight discount, supporting the share price on the back of a strong balance‑sheet and minimal interest drag. In this regime, buying on pull‑backs to the 200‑day MA or on support near $ 26‑$ 27 can be justified, especially given the company’s robust cash‑flows and upside from payment‑volume growth.

• Watch for redemption notices. A redemption‑call announcement would remove the conversion‑dilution risk and could trigger a modest rally as the debt‑load falls. Positioning long on any redemption news, while keeping a watch on cash‑position metrics (free cash flow coverage of debt), would capture the upside without the dilution penalty.

In short, the key driver of EPS impact is whether the stock price breaches the conversion price. Below that level, EPS stays stable; above it, modest EPS dilution is expected unless the interest‑expense savings offset the share increase. Trade the stock accordingly: stay long on consolidation below the trigger, and become cautious or short‑biased once the price repeatedly clears the conversion threshold.