Monday, July 1, 2013

Last Week's IPO's

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We had a few highly anticipated initial public offerings amidst last week's turbulence. An initial public offering, if you are new to the market, is the launch of a previously private company onto the public market where shares of the company are sold to public buyers. These offerings can be both lucrative to investors and the companies themselves.
Pasta for everyone
Lets start with Noodle & Company (NASDAQ: NDLS) , which operates 343 fast-casual restaurants serving global pasta dishes. Due to high investor demand, the company was able to price its IPO at $18, well above the initial $14-$16 range. Led by Morgan Stanley and UBS, the deal topped $96 million with 5.4 million shares offered in the deal. The majority of these proceeds will be used to pay down debt previously used for expansion.
Last quarter, the company grew revenue by 16% as a result of expanding its store count by 39 company-owned restaurants and 6 franchised store's.  Management believes its growth potential is extraordinary, thus justifying the company's industry leading earnings multiple. Some expect an additional 2,100 locations over the next 15 years, but such an expansion would be costly.
The company owns roughly 85% of its locations which cost $725,000 to build. This year management is targeting 10% store growth, which isn't bad for a company that's been around since 1995. On the first day of trading, shares moved higher by 104.2% as a result of a small float and higher than expected demand.
Industrial construction
Home Depot (NASDAQ: HDS) is the operator of 600 locations across the country and specializes in the industrial construction sector. In 2007, private equity acquired Home Depot Supply from Home Depot for $8.5 billion. Bain Capital along with The Carlyle Group looked to maximize the potential of these assets, unfortunately for them, the value of the company sits well below $3 billion today.
Shares priced far below the expected range of $22 - $25, as demand for the company was soft. The offering started at $18 but has since moved towards $19.  It's possible a broad market sentiment unduly hurt this company.
As the industrial sector continues to strengthen, Home Depot Supply is positioned to benefit from an increase in demand. However, at 28 times earnings, there are less expensive, more established opportunities to be had. The majority of the capital raised in the offering will be used to retire a bulk of the company's debt.
Lastly, Prosensa (NASDAQ: RNA) , a late-stage biotech developing treatments for Duchenne muscular dystrophy, hit the market last week. Led by J.P. Morgan and Citigroup, shares priced at the top end of the expected range with 6 million shares offered at $13 per share.
DMD is a genetic, degenerative muscle disease effecting roughly 1 in 3,600 males. The disease normally appears at a young age and shortens infected's life span. At this point, there is no approved treatment for the condition.
Drisapersen, the company's Phase 3 treatment in partnership with GlaxoSmithKline , has been shown to benefit patients suffering from DMD. The drug is targeted to only 13% of the total population of patient's.  However, the company does have a variety of other compounds in its pipeline.
Earlier this year, Drisapersen was granted orphan drug status by the FDA and its European counterpart t he European Medicines Agency. This brought the orphan drug total for the company up to 6, solidifying the potential profitability of the company. By reaching orphan status, Prosense will receieve regulatory support in development activities such as protocol assistance, reduced fees, tax incentives, and market exclusivity following drug approval.
Wrap up
Last week was a big week for a slow IPO market. Noodle & Company, while expensive, offers investors a bold strategy via large expansion over the next 15 years. Home Depot looks overvalued in comparison to its industry, but still may perform well as the economy improves. Prosensa has an interesting portfolio of potentially lifesaving and lucrative treatments.  Perhaps it's time you take a look for yourself.

I originally published this article on my Blog at Motley Fool via the Blogger Network!

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