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All Contents © 2019The Kiplinger Washington Editors
By Harriet Lefton, Contributing Writer
| June 27, 2019
Fans of initial public offerings (IPOs) have gotten one flashy deal after another in 2019. Some companies such as Beyond Meat (BYND) shocked onlookers with a meteoric ascent, while other hotly hyped companies such as Uber Technologies (UBER) crashed and burned early on. But broadly speaking, there’s demand for IPOs, and up-and-coming companies are happy to fill that demand.
“IPO activity is (mildly) cyclical, as management teams take the opportunity to go public while being buoyed by favorable economic conditions,” Bernstein equity strategist Noah Weisberger told CNBC in explaining this year’s red-hot IPO market.
It’s early going for these new stocks, however. They have only a few months of trading under their belts, and very little financial track record to go on. With so little information at their fingertips, investors must rely heavily on Wall Street’s analysts for insights into the comings and goings of these IPOs.
Here are 10 recent higher-profile IPOs, and what analysts are saying about each of these new stocks.
Data is as of June 25.
Market value: $73.1 billion
TipRanks consensus price target: $53.48 (24% upside potential)
TipRanks consensus rating: Strong Buy
Uber Technologies (UBER, $43.09) was one of the most highly anticipated IPOs on the calendar, but its May offering was a massive flop. Some hailed it as the most disappointing IPO since Facebook (FB) went public in 2012.
“The timing of our IPO was very much aligned with our president’s tariff wars, the same day,” CEO Dara Khosrowshahi said at the Economic Club of Washington. “So I think we got caught up a bit in the market swirl.”
Uber raised $8.1 billion in its early May IPO and opened trading at just $42 per share, down from its IPO price of $45. Despite this conservative starting point, shares continued to slide during their first trading day and closed at just $41.57. Khosrowshahi even had to reassure employees that “Facebook and Amazon post-IPO trading was incredibly difficult for those companies” as the company’s new stock continued to fall the next day.
Shares have recovered a little since then. And for some, Uber is a compelling investing proposition because shares haven’t run up to sky-high valuations so quickly after the offering.
Top-rated SunTrust Robinson analyst Youssef Squali describes Uber as “a generational company compounding at scale.” “Uber is capitalizing on powerful secular trends around the improving technology/ubiquity of personal mobile devices and ever-advancing consumer preferences, to transform a very large but highly inefficient transportation market,” writes Squali, who also points out that Uber dominates ridesharing (outside of China) and has used its scale to grow both Uber Eats and Uber Freight.
Wedbush’s Ygal Arounian, who has an “Outperform” (equivalent of “Buy”) rating and a $65 price target on Uber stock, says the company has the DNA to become a game-changing consumer distribution ecosystem over the coming years. He also dismisses concerns about the departures of COO Barney Harford and CMO Rebecca Messina, announced on June 7. “In the near term we believe this move is better to happen sooner rather than later,” he writes. “By having the leadership teams of rideshare and Eats report directly to (Khosrowshahi), Dara and Uber are more clearly focusing on optimizing the full consumer value proposition …”
Uber boasts a “Strong Buy” Street consensus, with 21 “Buy” ratings versus just five “Holds.” See what those other top analysts have to say about UBER on TipRanks.
Market value: $10.0 billion
TipRanks consensus price target: $20.62 (10% upside potential)
Avantor (AVTR, $18.70), a chemical maker in the life sciences industry, is a “smid-cap” (on the border of small and mid) stock to put on your investing radar. Avantor – formed by the 2017 merger of Avantor Performance Materials and VWR – serves attractive and relatively defensive addressable markets worth roughly $70 billion.
Avantor made the move from private to public in mid-May. The company sold 207 million shares priced at $14 per share, generating $2.9 billion. Shares closed their first day slightly higher, at $14.50, though the stock has been much more impressive since then, surging 29% to current share prices.
The Street broadly thinks AVTR is worth buying into, with 13 out of the 15 analysts covering the stock leaning bullish (the other two are on the sidelines).
Merrill Lynch analyst Derik De Bruin is in the bull camp. His Street-high price target of $22 indicates upside potential of 17%. “We believe the combined company is better positioned competitively than the standalones, and poised to deliver higher growth and profitability,” he writes. De Bruin believes Avantor can “steadily grow revenues in line with or even modestly better than its LST peers, expand margins, reduce debt, and deliver a 10% EPS CAGR over the next three years.”
What are other financial experts saying about this global life sciences manufacturer and distributor? Find out on TipRanks.
Market value: $14.2 billion
TipRanks consensus price target: $28.62 (9% upside potential)
TipRanks consensus rating: Moderate Buy
Popular photo-sharing website Pinterest (PINS, $26.14) made its debut on the New York Stock Exchange back in April. Unlike many other social media platforms, Pinterest focuses on enabling visual inspiration rather than talking to friends or following celebrities.
This strategy has resonated with investors, who drove PINS shares from an IPO price of $19 to $23.75 on their first day of trading. The stock has trudged forward to current prices from there, and in fact is coming close to the average analyst target price. In fact, most analysts covering the stock are taking a wait-and-see approach, with 13 “Hold” ratings versus just 5 “Buys.”
“While we find Pinterest’s visual discovery platform truly unique and its mid-to-low funnel return prospects for advertisers promising, we also acknowledge an incredibly competitive digital ad marketplace and daily time spent on social platforms nearly maxed out,” Rosenblatt Securities analyst Mark Zgutowicz writes.
He initiated PIN with a “Neutral” rating (equivalent of “Hold”) and a $32 price target, although this has since been lowered to $28. The analyst cited higher investment and ARPU (average revenue per user) growth deceleration as the reason behind the price downgrade.
Looking forward, analysts are also keeping a close eye on the company’s sizable international opportunity. However, as Zgutowicz cautions, new local branding and sales efforts will take significant time and investment before PINS will be able to reap the rewards. See why other top analysts have a cautiously optimistic outlook on Pinterest.
Market value: $9.1 billion
TipRanks consensus price target: $41.82 (2% upside potential)
TipRanks consensus rating: Hold
Bank-backed trading platform Tradeweb Markets (TW, $41.09) raised $1.1 billion in its April IPO. The financial services company sold 40 million shares at $27 each, beating its initial target price of $24-$26. Shares opened at $37.26 and have advanced even more since then.
But at the moment, analysts don’t see much growth from here.
Wall Street’s consensus price target sits just 2% higher from current prices. Meanwhile, 10 analysts have a “Hold” rating on Tradeweb, against just two “Buys.” Several pros are staying on the sideline because of a high valuation.
Barclays analyst Jeremy Campbell writes, “Valuation is the crux of our Equal Weight rating as we love the electronification of fixed income theme, but feel that TW shares fully reflect the most likely growth scenario.” Indeed, Campbell’s $39 price target implies 5% downside potential. He praises TW’s diversified business model (40-plus products) but adds that “Greater penetration in electronic credit would get us more bullish.”
Raymond James’ Patrick O’Shaughnessy delivers a similar message. Despite calling the company “attractive,” the analyst initiated coverage on TW with a “Market Perform” rating (equivalent of “Hold”) due to its premium valuation. And Morgan Stanley’s Michael Cyprys advises investors to wait for a better entry point before snapping up TW stock. For further insights into this stock, check out TW’s analyst page at TipRanks.
Market value: $8.1 billion
TipRanks consensus price target: $24.67 (19% upside potential)
Jeans aren’t traditional trading-floor attire, but that wasn’t the case when denim giant Levi Strauss (LEVI, $20.75) returned to the market on March 21. At its 2019 IPO, Levi sold $623 million worth of shares at a price of $17 per share, beating the initial target of $14-$16. Shares exploded 30% to open at $22.22.
Traders wore blue jeans to celebrate the occasion.
The stock has since remained relatively rangebound, however, and analysts are divided about whether you should buy now, creating a consensus “Moderate Buy.” Three analysts call LEVI a “Buy,” while three rate it a “Hold.” But if we look at only top-rated analysts, that consensus shifts to a more bullish “Strong Buy.”
Five-star Guggenheim analyst Robert Drbul has just initiated coverage with a “Buy” rating and $26 price target. He calls this a “rivet-ing growth story,” writing, “Levi’s is a company with a very rich heritage ... and today benefits from a high-quality, deep, and experienced management, led by CEO Chip Bergh and CFO Harmit Singh. As numerous growth strategies implemented by this team take hold, we foresee continued market share gains across apparel, globally, alongside improving profitability.”
He cites numerous recent collaborations by Levi’s, such as with KITH, Supreme, Off White and Justin Timberlake, as well as marketing initiatives with Alicia Keys and partnerships with influencer-dominant events such as Coachella. These “speak to the significant brand equity management underway at Levi’s,” Drbul writes. Discover how the stock’s ‘Moderate Buy’ consensus breaks down on TipRanks.
Market value: $18.6 billion
TipRanks consensus price target: $70.25 (10% upside potential)
Uber isn’t the only ride-hailing service to hit the markets in 2019. Lyft Inc. (LYFT, $64.04) actually executed its IPO two months earlier, in late March, with shares priced at $72. Unfortunately, shares have pulled back considerably since then, with experts pointing to Lyft’s service’s deep unprofitability.
But it’s not all doom and gloom. “We believe the competitive environment is likely as favorable as it’s ever been in the [about] 7 years of ridesharing, with record low incentives for drivers and riders,” JPMorgan’s Doug Anmuth writes.
“Importantly, as price competition & couponing ease, we believe Lyft can extend its share gains based on its singular focus on [transportation as a service] and ongoing product innovation.” The five-star analyst has a bullish $86 price target on Lyft, implying upside potential of 34%.
Analysts as a whole are mixed on LYFT right now, however, giving it a “Moderate Buy” consensus rating. Yes, 19 analysts rate it a “Buy,” but eight have it at “Hold” and three call it a “Sell.”
Top-rated Susquehanna analyst Shyam Patil has just upgraded Lyft from “Hold” to “Buy” and lifted her price target from $57 per share to $80. Lyft has a “a strong #2 market presence,” he writes, and a savvy “longer-term transportation-as-a-service vision.”
“With the US rideshare market becoming more rational, LYFT showing clear evidence of marketing and insurance cost leverage, and UBER’s IPO out of the way, this is the time to buy the stock,” Patil concludes. See what other top analysts have to say about LYFT on TipRanks.
Courtesy Zoom Video Communications
Market value: $23.2 billion
TipRanks consensus price target: $84.50 (1% downside potential)
Zoom Video Communications (ZOOM, $85.03) provides remote video conferencing services using cloud computing. What sets Zoom apart is that this recent IPO has already managed to turn a profit – many new stocks come to market representing money-losing operations.
Perhaps that’s why the company delivered a remarkable offering, with shares exploding more than 70% on the first day of trading. Indeed, Zoom has more than doubled its $36 IPO price thanks to stellar financial results. In its most recent quarter, revenues more than doubled and were 9.2% better than forecasts, while profits beat expectations by 2 cents per share. It also forecast 74.4% year-over-year sales growth in its current quarter.
“Clearly ZM has brought to market a highly differentiated and disruptive product, enabled by a sound go-to-market strategy,” Northland Securities analyst Ryan Koontz writes. “The company has high inspirations to revolutionize the way people communicate and we are enthused by the company’s market momentum and strong execution out of the gate.”
However, Zoom’s strong growth has placed the stock at a crossroads. ZM has exceeded the analyst consensus price target, meaning we’ll want to see whether analysts keep pushing their estimates forward … or think Zoom has climbed all it will climb for the moment. It seems the latter, as the stock boasts 10 “Hold” ratings versus just four “Buys.”
He explained: “We are bullish on the company’s ability to execute but we view the stock as fully or over-valued since its since its IPO on April 18,” Koontz wrote after the company’s Early-June earnings report. Find out how the Street’s average price target for ZM breaks down.
Market value: $2.93 billion
TipRanks consensus price target: $22.31 (16% upside potential)
Welcome to the biggest energy IPO of 2019 so far. Rattler Midstream LP (RTLR, $19.29) raised $665 million in May, easily surpassing the gains for both Brigham Minerals (MNRL) and New Fortress Energy LLC (NFE). The company sold 38 million shares at $17.50 each; shares have gotten some more lift since then.
Rattler is a pure-play Permian Basin midstream company backed by top-tier Permian Basin exploration-and-production pure-play Diamondback Energy (FANG). It provides Diamondback with crude oil, natural gas, and water-related midstream services. And Diamondback continues to hold 71%-75% of RTLR shares following the offering. Northland Securities’ Jeff Grampp is optimistic about the company’s prospects, writing: “RTLR has a strong organic growth outlook ... that we believe is relatively low-risk given FANG’s operational track record, low-cost operations and healthy balance sheet.”
The key selling point for Rattler is its FANG exposure. As Grampp writes, this gives Rattler a relatively lower-risk growth profile versus its midstream peers, with growth supported by FANG’s deep drilling inventory (around 25 years of Tier 1 locations). Dividend investors also have something to look forward to. As the analyst points out, Rattler currently pays a lucrative 5%-plus dividend yield with payout-growth potential too.
RBC Capital’s Tim Schultz says the premium valuation is keeping him on the sidelines, but nonetheless highlights the company’s strong 2019 estimated production growth of 26%. Overall Rattler shows a cautiously optimistic “Moderate Buy” analyst consensus. What are other financial experts saying about this intriguing FANG subsidiary? Find out on TipRanks.
Courtesy Beyond Meat
TipRanks consensus price target: $108.50 (28% downside potential)
Fake-meat stock Beyond Meat (BYND, $150.60) has enjoyed an eye-watering rally since its IPO. Shares have exploded by roughly 500% from its IPO price of just $25 per share – including a 163% initial pop that represented the best first day of trading for any company in nearly two decades. The result: Some lucky investors have reaped massive rewards, and short sellers have lost an eyewatering $560 million according to data analytics firm S3 Partners.
But analysts think investors should avoid chasing the stock at this point. All seven analysts covering Beyond Meat rate the stock a “Hold,” and the current price target implies a plunge of nearly 30% in coming months.
Both Bernstein’s Alexia Howard and JPMorgan’s Kenneth Goldman recently downgraded BYND from “Buy” to “Hold.” Howard is stepping to the sidelines “as the stock has traded in a highly volatile manner since its IPO likely due to its limited public float.” She noted that the stock’s enterprise-to-value sales relative to potential sales implied “limited upside potential from a valuation perspective.”
But Howard is optimistic about Beyond Meat’s prospects. “We continue to expect significant growth potential in the plant-based meat category and believe that Beyond Meat is well positioned as one of the front-runners leading the new wave of plant-based meat products,” she writes.
Goldman’s downgrade was a “purely valuation call.” He had previously warned investors that he would downgrade the stock when BYND’s valuation exceeded the company’s “extraordinary” money-making potential, and “We think this day has arrived.” Indeed, his $121 price target now suggests about 20% downside potential lies ahead. Discover how the overall price target breaks down on TipRanks here.
Market value: $590.6 million
TipRanks consensus price target: $35.75 (28% upside potential)
TransMedics Group (TMDX, $28.00) has created a groundbreaking portable device that maintains donor organs in a human-like state. In May, the company reaped $105 million after selling 6.55 million shares at $16, the midpoint of its targeted price range. This included an underwriters’ option that was exercised in full. Shares subsequently gained 40% on the first trading day to close at $22.36.
Analysts, who give it a consensus “Strong Buy” rating, think this could be just the start of the company’s blockbuster story.
“We initiate coverage of TransMedics with an Overweight rating and $34 December 2019 price target, as the company is set to revolutionize the organ transplant market using its Organ Care System, or OCS,” writes top-rated JPMorgan analyst Robbie Marcus.
The current standard of care uses the equivalent of an ice cooler for organ storage during transportation, and OCS is ready to disrupt this, Marcus says. Not only does it maintain the organs in a near-physiologic state, but it also allows doctors to optimize and assess the organs pre-implantation. Marcus anticipates a total market opportunity exceeding $7 billion for today’s pipeline products alone.
Cowen & Co.’s Joshua Jennings is even more optimistic on the size of the opportunity, writing, “We believe TransMedics is filling a unique white space in transplant medicine and creating an $8B market. With multiple clinical and operational catalysts on the horizon, we expect OCS adoption and utilization trends to soon hit an inflection point.” See why other top analysts are also bullish on TransMedics.
Harriet Lefton is head of content at TipRanks, a comprehensive investing tool that tracks more than 5,000 Wall Street analysts as well as hedge funds and insiders. You can find more of their stock insights here.