2011 has seen its fair share of poorly priced IPOs.  24/7 Wall St. took a look at the entire IPO class of 2011 and looked through to see which IPOs were greatly mispriced.  The most obvious were in the following: Arcos Dorados Holdings Inc. (NYSE: ARCO); Boingo Wireless, Inc. (NASDAQ: WIFI); Demand Media, Inc. (NYSE: DMD); Epocrates, Inc. (NASDAQ: EPOC); Freescale Semiconductor Inc. (NYSE: FSL); FriendFinder Networks Inc. (NASDAQ: FFN); HCA Inc. (NYSE: HCA); Kips Bay Medical, Inc. (NASDAQ: KIPS); LinkedIn Corporation (NYSE: LNKD); NetQin Mobile Inc. (NYSE: NQ); Pandora Media Inc. (NYSE: P); Renren Inc. (NYSE: RENN); and Skullcandy, Inc. (NASDAQ: SKUL).

Some of the mispricing will appear to be the weak stock market. These mispriced issues go above and beyond the stock market performance. We took a look at the underwriters, the pricing around the pre-IPO ranges, the float, the valuation then and now, and more.  In many cases, we even noted what the analyst group thinks of these outfits today with consensus price targets from Thomson Reuters.

Arcos Dorados Holdings Inc. (NYSE: ARCO) is the Latin American operator of McDonald’s.  The offering was 73.5 million shares, 11 million higher than expected at $17.00 per share, above the $13 to $15 price range.  This one was rather simple to observe: the raised shares and the raised price just didn’t get raised enough. Unlike the bulk of the mispriced IPOs, “The Latin Golden Arches” had money left on the table.  The Chairman and CEO controls the company with a super-majority stake, but he even bought shares in the IPO. It came public in April and it did not get killed May and did not get killed in the July-August market panic.

Bank of America Merrill Lynch, J.P. Morgan, Morgan Stanley and the others left money on the table here for the company.  It seemed as though a $20.00 offering could have been easily supported even at the higher share count. To prove the point, the post-IPO range is $19.70 to $29.43 and that sub-$20 price was only on one day in July. This IPO had very little hype going into it when you consider what you get: McDonald’s growth versus Latin American population growth.  This last week has been the only real drop with major emerging market selling or the gains would even be more.  Investors may be getting a chance to get back in on the cheap.

Boingo Wireless, Inc. (NASDAQ: WIFI) was in the pre-selling waves before the summer, but its hotspot model is not as hot when you consider how so many smartphones and subscriber services are doing the company’s job.  We actually have no issues with the company’s business model, but the issue is on how it is valued.  After selling 5.77 million shares at $13.50 per share on May 4, the opening price was about 7% lower and it closed down almost 10% on the first day.  It never saw that price again and by May 16 this was under $10.00.

Earnings were a disappointment in June, something we think the company or the underwriters should have known at the IPO when the price range was $12 to $14 per share.  Credit Suisse and Deutsche Bank were the joint book-runners on the deal and this stock is now down close to $8.00 after trading under $7.00.  Should a questionable IPO price even be valued now at close to 60-times 2011 expected earnings?  Nothing wrong with the company, but a lot wrong with how it was priced.

Alcatel-Lucent (NYSE: ALU) Raised to Neutral at Nomura.
Alexion Pharmaceuticals, Inc. (NASDAQ: ALXN) Cut to Hold at Citigroup.
American Water Works Company, Inc. (NYSE: AWK) Started as Neutral with $29 target at Credit Suisse.
Blue Nile Inc. (NASDAQ: NILE) Cut to Hold at Citigroup.
Brightpoint Inc. (NASDAQ: CELL) Raised to Outperform as the Bull of the Day at Zacks Investment Research.
Chipotle Mexican Grill, Inc. (NYSE: CMG) Cut to Neutral at BofA/ML.
Cisco Systems, Inc. (NASDAQ: CSCO) Cut to Neutral at JPMorgan.
Epocrates, Inc. (NASDAQ: EPOC) Started as Market Perform at Morgan Keegan.
Expedia, Inc. (NASDAQ: EXPE) Cut to Neutral at BofA/ML; Cut to Hold at Deutsche Bank.
Green Dot Corporation (NYSE: GDOT) Cut to Sell at Janney.
International Flavors & Fragrances (NYSE: IFF) Raised to Overweight at Barclays.
Onyx Pharmaceuticals Inc. (NASDAQ: ONXX) maintained as Underperform as the Bear of the Day at Zacks Investment Research.
Spirit AeroSystems Holdings Inc (NYSE: SPR) Cut to Neutral with $26 target at Credit Suisse.
Sprint Nextel Corporation (NYSE: S) Cut to Neutral with $5 target at Goldman Sachs.
Tupperware Brands Corporation (NYSE: TUP) Raised to Buy with $64 target at Argus.

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JON C. OGG

J.P. Morgan and Piper Jaffray were the joint book-running managers; co-managers were listed as William Blair & Company and JMP Securities.  The underwriters have been granted a 30-day option to purchase up to an additional 804,000 shares of common stock from Epocrates to cover over-allotments.

The trading range has so far been in a range of $20.00 to $21.16 and shares at noon are currently up 28% at $20.49 on more than 5.4 million shares.

The company makes handheld applications for doctors and medical staff.  Think apps and programs for smartphones and tablets at the doctor’s office or the hospital.

Here is a list of the 17 most anticipated IPOs of 2011.

JON C. OGG

The company itself is selling 3,574,285 shares of common stock and the selling stockholders are selling an additional 1,785,715 shares. The company will receive none of the proceeds from the sale of shares of common stock by the selling stockholders.

Joint book-runners in the offering are J.P.Morgan and Piper Jaffray; co-managers are  William Blair and JMP Securities.  Epocrates granted the underwriters a 30-day overallotment option to purchase up to 804,000 additional shares of common stock from the company at the IPO price.

Its products are most commonly used on mobile devices at the point of care to help healthcare professionals make more informed prescribing decisions and boost patient safety. The company’s user network consists of over one million healthcare professionals, which its claims is over 300,000 or more than 45% of U.S. physicians.  It supports most mobile platforms: iPhone, iPod, iPad, Android, BlackBerry, Palm, and Windows Mobile.  The revenue model comes from providing healthcare companies with interactive services to communicate with its network of users and by selling subscriptions to premium drug and clinical reference tools.

In 2009, net revenue was $93.7 million versus $83.3 million for 2008; and revenues were $73.7 million for the nine months ended September 30, 2010 versus $66.2 million for the nine months ended September 30, 2009.

Income before taxes for 2009 was $14.4 million versus $13.9 million for 2008; income before taxes for the nine months ended September 30, 2010 was $3.3 million versus $8.2 million for the nine months ended September 30, 2009.

Not all holders have been listed but you will see there is a known list of owners and backers here.  The Goldman Sachs Group Inc. (NYSE: GS) is listed as a 16.1% owner before the offering (12.4% after); Sprout Capital owns 17% (11.8% after); InterWest owns 12.7% (8.8% after); Draper Fisher Jurvetson owns 10.4% (8.8% after).

• The Top 17 IPOs To Watch In 2011 is here

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JON C. OGG

Epocrates provides medical information support tools to healthcare professional. The company has strong brand recognition and over 500,000 healthcare professionals actively subscribe to use their product, including 1 in 4 doctors and 1 in 3 medical students. The technology allows healthcare professionals to access medical information on various devices, such as Blackberries, Palms, iPhones, desktops and PC’s. The market has seen a growing use of PDA’s or smartphones by physicians and the company believes its strong market position and brand name will create demand for their services. In 2006 and 2007, the company generated $49.5 and $65.6 million, respectively. Income before taxes in 2006 and 2007 were -$1.4 million and $4.6 million, respectively. The company generated enough in 2007 to pull it out of the red and into the green.

Epocrates joins other recent medical industry companies trying to go public. Codexis and Fluidigm also recently submitted their IPO paperwork.

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Rachel Lopez
April 18, 2008