Let’s talk about IPOs, the most common route for companies to enter the public trading markets. Last year and the year before, there were record-breaking and record-breaking numbers, total number of public offerings and capital raised, but that blazing pace has slowed this year.
In the first half of 2022, there were just 92 IPOs raising about $9 billion, and analysts predict a total of 184 companies will go public this year through the initial offerings. By comparison, in the first quarter of 2021 alone, 395 IPOs raised a total of $140 billion. The drop off is obvious.
The slowing IPO activity can be traced back to the 6-month bear market we experienced in 1H22, increased market uncertainty and the general economic downturn. In such an environment, start-ups are more reluctant to enter public markets and investors are more cautious about where they put their money. On both sides, we are more likely to find a wait-and-see attitude as companies and investors watch the markets shake out.
From the investor’s perspective, this all means that homework is now more important than ever. Learning the details of the IPO before the event and finding the companies with strong adoption for the offering are good first steps. They can be tracked by contacting the street analysts – these are the objective professionals who regularly publish stock market research notes, and their research can point the way to hidden gems.
We opened the TipRanks database to find 3 recent IPO stocks that the analysts say are looking up. These are all companies that went public in May of this year, but have since picked up some Street love. Here are the details, along with the analysts’ commentary.
PepGen, Inc. (PEPG)
We start in the biotechnology sector, where PepGen is a clinical company working on oligonucleotide therapies, a new generation of drug candidates that promise to transform the way we treat serious neuromuscular and neurological diseases. The company uses its own development platform, based on Enhanced Delivery Oligonucleotides (EDOs), to create a range of drug candidates; these are now entering clinical trials.
The lead candidate, PGN-EDO51, is under investigation as a treatment for Duchenne muscular dystrophy (DMD), and the company began dosing patients in a Phase 1 trial last April. The current study is aimed at healthy, normal volunteers and tests safety, tolerability and pharmacokinetics. The company expects to release figures by the end of this year.
The company’s second lead drug candidate is PGN-EDODM1, a potential treatment for myotonic dystrophy type 1 (DM1). It showed promise in preclinical testing and the company is planning an IND submission in 1H23, ahead of the start of a Phase 1/2 clinical trial.
PepGen has three more drug candidates in the discovery and preclinical phases, but the shift to human clinical trials is expensive. In order to raise capital for this, the company held its IPO in May of this year. At the event, the PEPG ticker began trading on May 6, with an initial price of $12 per share and a closing price of $12.89 on day one. The IPO successfully raised the projected $108 million, though shares have fallen 24% since then.
SVB analyst Joseph Schwartz covers this relatively new stock and he views the lead drug candidates as superior to competitors’ assets, writing: “We consider PEPG’s lead candidate – PGNEDO51 for Duchenne Muscular Dystrophy (DMD) patients with Exon 51 mutations – as the risk based on clinical data from SRPT’s SRP-5051…. The Ph.1 readout from healthy volunteers of PGN-EDO51 is expected to be completed by the end of the year and will include safety skipping data, PK and exon 51. We consider this an underappreciated catalyst that will establish baseline expectations for patients and also has potential to demonstrate the best-in-class capabilities of PGN-EDO51 compared to the HV study results of the SRP-5051 …. We note that DM1 represents a major market opportunity – we are currently modeling a peak (2035E) gross WW revenue of ~$730M for PGN-EDO51 and ~$2.5M rd for PGN-EDODM1.”
Schwartz gives PEPG stock an Outperform (Buy) rating, along with a price target of $40, implying a one-year upside potential of a staggering 3o9%. (To view Schwartz’s track record, click here.)
In the past 3 months, 3 analysts have weighed this stock and all are positive, giving it a unanimous Strong Buy consensus rating. The shares are selling for $9.78 and their average target of $27 indicates a strong increase of 176% for the coming year. (See PepGen’s stock forecast at TipRanks.)
ProFrac Holding Corporation (PFHC)
Next on our list, ProFrac is a holding company whose subsidiaries provide a range of services and solutions to the North American hydrocarbon industry. ProFrac’s offerings include services and products to enable hydraulic fracturing and well completion services in both the oil and gas exploration and production sectors.
In May, the PFHC ticker went on sale through an IPO that opened on the 13th of the month. The stock closed that day at $18.11, a shadow above its opening price of $18. The company successfully raised $441.6 million through its IPO and since its first day closed, its shares are up 9%.
Last month, ProFrac released its second quarterly financial report as a public entity — and the first to show results achieved since the company went public. The 2Q22 report showed a 40% increase in quarterly revenue, with revenue of $589.8 million. Net income was $70.1 million and the company reported a cash position of $73.7 million as of June 30. In total, the company reported total liquidity of $88 million at the end of the second quarter.
Stephen Gengaro, 5-star analyst at Stifel, was quite impressed with the company’s out-of-the-gate performance, citing the quarterly results as key points in his assessment of the stock: “Backed by strong, under pressure fundamentals, solid execution, and the positive benefits of its vertical integration, provided ProFrac with its second consecutive upside surprise since its IPO… We continue to expect strong, pressurized fundamentals to drive rising profitability at least through 2023, and probably longer. ”
Gengaro rates these stocks as a buy and gives a target price of $29, implying a potential upside potential of 46% over the one-year horizon. (To view Gengaro’s track record, click here.)
This energy/industrial stock has caught the eye of 7 Wall Street analysts, and their ratings include 6 to buy and 1 to hold, for a strong buy consensus rating. The current trading price of $19.79 and the average price target of $26.93 together provide a 36% increase over the next 12 months. (See ProFrac’s stock forecast on TipRanks.)
Hanover Bancorp, Inc. (HNVR)
For our latest stock, we’ll shift the focus again – this time to the financial world. Hanover Bancorp was recently established in 2009 as a single bank holding company; that is, its sole subsidiary is Hanover Community Bank, a small bank with some $1.6 billion in assets and operations in New York/New Jersey. Hanover Bank has 8 physical branches, in metropolitan NYC, on Long Island and in Freehold, New Jersey.
Like many other local banks, Hanover offers full services to smaller clients, including retail and small business clients. Services include checking and savings accounts, debit cards, money markets and CDs, banking advisory services, personal and business loans, mortgages, and online and mobile banking.
Hanover Bancorp held its IPO from May 11 to May 13, opening May 11 for $21; since then, the shares have fallen slightly – by ~5%.
On June 30, the company closed the third quarter of fiscal 2022 with net income of $5.3 million, or 80 cents per diluted share. This compares to a year-ago result of just $221,000 and 5 cents per diluted share; the y/y jump is significant. Revenue also increased significantly, up 50% from the same period last year to $16.65 million. The company’s assets of $1.6 billion are up from $1.54 billion at the end of the same quarter a year ago. These assets include $133 million in cash.
Banks and bank holding companies typically pay regular dividends, and Hanover Bancorp paid out three common stocks in February, June and August this year. The payments, of 10 cents per common share, add up to 40 cents year-over-year and give a return of 2%, almost exactly the average dividend found at comparable companies.
Analyst Mark Fitzgibbon, who covers this stock for Piper Sandler, sees the bank’s credit performance as the differentiator. After the FQ3 print, he wrote: “Total loan balances grew 10% Q/Q, while total balance sheet positions grew 9% over the linked quarter. The linked quarter’s credit growth was seen in each of their three main loan segments: multi-family (+23% Q/Q), commercial real estate (+11% Q/Q) and residential mortgages (+2% Q/Q). Each of these credit classes represents >25% of their loan portfolio composition in Q2 22. Our discussions with management lead us to believe that Hanover will benefit from a strong pipeline in 3Q22. We think residential mortgages can grow better than other credit categories as they want to further diversify the balance sheet.”
According to Fitzgibbon, this justifies an Overweight (Buy) rating, and his price target, set at $26, suggests room for a 30% price increase in the coming year. (To view Fitzgibbon’s track record, click here.)
While there are only 2 recent reviews of this new bank holding company, they both agree that it is a buy, making the moderate buy rating unanimous. Shares in HNVR are priced at $20.01, while the average price target of $25.75 is nearly identical to Fitzgibbon’s target. (See Hanover Bancorp’s stock forecast on TipRanks.)
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Disclaimer: The opinions expressed in this article are those of the recommended analysts only. The content is for informational purposes only. It is very important to do your own analysis before making any investment.