Let’s talk about IPOs, the most common entry route for companies to the public trading markets. Last year, and the year before, there were records and records, in the total number of public offerings and fundraising, but this explosive pace has slowed this year.
The first half of 2022 saw just 92 IPOs raise about $9 billion, and analysts predict that this year will see a total of 184 companies go public through initial offerings. For comparison, the first quarter of 2021 alone saw 395 IPOs raise a total of $140 billion. The decline is clear.
The slowdown in IPO activity can be traced to the 6-month bear market we experienced in 1H22, increased market uncertainty and the overall economic downturn. In such an environment, startups are more reluctant to enter the 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 to see how the markets shake out.
From an investor’s perspective, what all of this really means is that homework is now more important than ever. Learning the details of the IPO before the event and finding companies with strong underwriting are good first steps. They can be followed by checking in with 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’ve opened up the TipRanks database to find 3 recent IPO stocks that analysts say they’re looking for. These are all companies that went public in May of this year, but have since gotten some love on the Street. Here are the details, along with analyst commentary.
PepGen, Inc. (PEPG)
We’ll start in the biotech sector, where PepGen is a clinical-stage company working on oligonucleotide therapies, a new generation of drug candidates that promise to change the way we treat serious neuromuscular and neurological diseases. The company uses a proprietary development platform, based on Enhanced Delivery Oligonucleotides (EDOs), to generate a series 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 study last April. The current trial focuses on healthy normal volunteers, testing 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 plans an IND submission in the first half of 2023, ahead of the start of a Phase 1/2 clinical trial.
PepGen has three other drug candidates in the discovery and preclinical phases – but moving to human clinical trials is expensive. To raise capital for this, the company held its IPO in May this year. The event saw the ticker PEPG begin trading on May 6, with an opening price of $12 per share and the first day’s close at $12.89. The IPO successfully raised the $108 million expected, although shares have fallen 24% since then.
SVB analyst Joseph Schwartz covers this relatively new stock and sees top drug candidates superior to rival assets, writing, “We see PEPG’s lead candidate — PGNEDO51 for Duchenne muscular dystrophy (DMD) patients with Exon 51 mutations — as de-risk based on clinical data from SRPT’s SRP-5051…. The healthy volunteer Ph.1 readout of PGN-EDO51 is guided to take place by the end of the year and will include safety, PK bypass and exon 51 data. We think this is an underappreciated catalyst that will set key expectations for patients and has also the ability to demonstrate PGN-EDO51’s best-in-class capabilities compared to SRP-5051’s HV study results…. We note that DM1 represents a large market opportunity — we currently model peak (2035E) gross WW sales of ~$730 million for PGN-EDO51 and ~$2.5 billion for PGN-EDODM1.”
Schwartz gives PEPG stock an Outperform (Buy) rating, along with a $40 price target that implies a one-year upside potential of 3o9%. (To follow Schwartz’s history, Click here.)
In the past 3 months, 3 analysts have weighed in on this stock and are all positive, giving it a unanimous consensus of Strong Buy. Shares are selling for $9.78 and their $27 average target suggests a strong upside of 176% over the next year. (See PepGen’s stock forecast at TipRanks.)
ProFrac Holding Corporation (PFHC)
Next on our list, ProFrac, is a holding company whose subsidiaries offer a range of services and solutions to the North American hydrocarbon industry. ProFrac’s offerings include services and products that enable hydraulic fracturing and well completion services in both the oil and gas exploration and production sectors.
In May, the PFHC index went public through an IPO that opened on the 13th of the month. The stock closed that day at $18.11, a shade above its opening price of $18. The company successfully raised $441.6 million through the IPO, and since the close of the first day, shares have risen 9%.
Last month, ProFrac released its second quarterly financial report as a public entity – and the first to show the results achieved since the company went public. The 2Q12 report showed a 40% increase over the quarter, with revenue reaching $589.8 million. Net income was reported at $70.1 million and the company reported a cash position of $73.7 million as of June 30. Overall, the company reported $88 million in total liquidity at the end of the second quarter.
Stephen Gengaro, a 5-star analyst at Stifel, was duly impressed by this company’s performance “out of the gate” and notes the quarterly results as key points in his review of the stock: and the positive benefits of its vertical integration, ProFrac brought the second consecutive upside surprise since its IPO…. We continue to expect strong pumping fundamentals to drive profitability growth through at least 2023 and likely beyond.”
Gengaro rates these shares a Buy and gives a target price of $29, suggesting a potential upside of 46% over a one-year horizon. (To follow Gengaro’s history, Click here.)
This energy/industrial stock has attracted the attention of 7 Wall Street analysts, and their ratings include 6 for Buy and 1 for Hold, for a strong buy consensus. The current trading price of $19.79 and the average target price of $26.93 combine to give a 36% upside over the next 12 months. (See ProFrac’s stock forecast at TipRanks.)
Hanover Bancorp, Inc. (HNVR)
For our final stock, we’ll focus again – this time, on the financial world. Hanover Bancorp was recently established in 2009 as a bank holding company. Namely, its sole subsidiary is Hanover Community Bank, a small bank with approximately $1.6 billion in assets and operations in New York/New Jersey. Hanover Bank has 8 physical branches in metropolitan New York, Long Island and Freehold, New Jersey.
Like many local banks, Hanover provides full services to smaller customers, including retail and small business customers. 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, with the stock opening on May 11 at $21. since then shares have fallen slightly -by ~5%.
On June 30, the company ended the 3rd quarter of fiscal 2022 with net income of $5.3 million, or 80 cents per diluted share. That compares to a result last year of just $221,000 and 5 cents per diluted share. the y/y jump is significant. Revenue was also up significantly, up 50% from the same period last year to $16.65 million. The company’s assets of $1.6 billion were up from $1.54 billion at the end of the year-ago quarter. These assets included $133 million in cash.
Banks and bank holding companies typically pay dividends regularly, and Hanover Bancorp has paid three common stock dividends in February, June and August of this year. The payouts, of 10 cents per common share, are annualized at 40 cents and yield 2%, almost exactly the average dividend found among peers.
Covering this stock for Piper Sandler, analyst Mark Fitzgibbon sees this bank’s loan performance as the differentiator. After printing FQ3, he wrote: “Total loan balances were up 10% Q/Q, while total balance sheet yields were up 9% from the linked quarter. Loan growth from the linked quarter was seen in each of the three main loans: Multifamily (+23% Q/Q), Commercial (+11% Q/Q) and Residential Mortgages (+2% Q/Q) . Each of these loan classes represents >25% of the calendar composition of their loan portfolio for 2Q22. Our conversations with management lead us to believe that Hanover will benefit from a strong pipeline in 3Q12. We believe mortgages could see better growth than other loan categories as they look to further diversify the balance sheet.”
In Fitzgibbon’s view, this warrants an Overweight (Buy) rating, and his price target, set at $26, suggests room for the stock to appreciate by 30% over the next year. (To follow Fitzgibbon’s history, Click here.)
While there are only 2 recent reviews of this new bank holding company, both agree 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 almost identical to Fitzgibbon’s target. (See the Hanover Bancorp stock forecast at TipRanks.)
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Disclaimer: The views expressed in this article are solely those of the selected analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.