Fans of IPOs would have noticed that recent years have presented lean pickings, as fewer companies went public while inflation and interest rates were running high and the threat of a hard landing for the economy loomed larger.
Investor sentiment has been improving in recent months, however, and the conventional wisdom expects interest rates to start coming down later this year.
That’s good news for companies seeking to go public, and market experts are starting to notice the change – and its benefit for investors.
“The IPO market was essentially frozen for about two years until investors began to expect interest rates would begin to decline again,” says Jeremy Bohne, founder at Paceline Wealth Management in Boston. “That’s not all bad, though. We’re seeing that a limited number of companies reach IPO, but they are in a stronger operational position and have more reasonable valuations.”
Meanwhile, Citigroup analysts have been tracking the IPO sector and have identified two names that are worth pulling the trigger on right now. And it looks like they are not alone in thinking along those lines. According to the TipRanks database, these IPO stocks have earned ‘Strong Buy’ ratings from the analyst consensus. Here are the details.
PACS Group (PACS)
We’ll start in the healthcare industry, where PACS Group operates in the skilled nursing care niche. PACS is a leader in this field, specializing in the provision of high-quality post-acute skilled care and working as a holding company with a network of independently operated facilities. The company’s network is spread across 9 US states and totals nearly 220 post-acute facilities. The company employs over 32,000 people and serves more than 20,000 patients per day.
PACS was founded back in 2013 and has expanded dramatically over the past decade. The company got started with just two skilled nursing facilities; today, in addition to its 200-plus in-patient facilities, the company also offers ancillary and support services. PACS uses a mission-driven care model to balance its wide-ranging network with local decision-making on patient services.
This is one of the newest stocks on the market, having gone public on April 11 of this year. The IPO was upsized from the initial filing, and PACS put 21.4 million shares up for sale at $23 each. The company realized $450 million in gross proceeds from the offering.
Analyst Jason Cassorla covers this new stock for Citigroup, and he finds plenty of reason to take an upbeat view. Cassorla notes factors from PACS’ solid business model to its potential for M&A expansion, and writes, “As one of the larger skilled nursing facility (SNF) operators in a highly fragmented market upended by COVID-19, we see PACS well positioned to grow and capture share within the current environment that favors the shift to lower-cost providers. To capitalize on this paradigm, PACS’ purpose-built decentralized model and emphasis on high quality of care / clinical outcomes should lead to continued occupancy strength (85%+), and importantly skilled mix shift (35%+). This manifests in a plethora of opportunities to drive favorable topline and EBITDA growth on its current facility base and onto its expansive M&A pipeline. These favorable attributes, coupled with attractive valuation, drive our positive recommendation on the stock.”
Looking ahead from this, Cassorla goes on to rate PACS shares as a Buy, and he sets a $32 price target that implies a one-year upside of nearly 29%. (To watch Cassorla’s track record, click here)
PACS has picked up 6 analyst reviews since its IPO and they are all positive – giving the shares a Strong Buy consensus rating. The shares are trading for $24.87, and their $30.50 average target price suggests that a gain of 22.5% is in store over the next year. (See PACS stock forecast)
UL Solutions (ULS)
Next on our list is UL Solutions, a company working in the safety science niche. UL Solutions is based in Illinois, but it has a global reach, working with customers in more than 110 countries. The company offers solutions for safety, security, and sustainability. Some of UL’s specific services include product and systems testing, inspection, and certification, to support its customers in their business and innovation endeavors.
Safety inspection is an important niche in industrial production, and UL’s success in this area has made its Recognized Component Mark a valuable identifier for products that have passed the company’s inspection process. UL’s standards are used in a wide range of inspection regimes, products as varied as electronics, life safety devices, plastic materials, and industrial control equipment. The company also offers a range of computer benchmark products.
UL Solutions held its IPO in April, and its stock entered the trading markets on April 12. The company sold a total of 33.8 million shares, at $28 each, figures that represented an upsize from the original plan to sell 28 million shares. The $28 opening price was in line with the original range of $26 to $29 per share. The company raised approximately $946 million in gross proceeds from the sale and attracted attention from major institutional investors such as Norway’s wealth fund.
The company’s activities have attracted Citigroup’s Arthur Truslove, who is impressed by UL’s growth potential. Truslove says, “In our view, UL has the opportunity to deliver accelerated growth within its all-important Industrial division (>60% of adj. EBITDA). At the same time, we see evidence that the Consumer division (>40% of 2023 revenue) has been cyclically under-earning, and see potential for a rebound… In our view, UL Solutions can grow revenue organically by a 2024E-26E CAGR of 6%, and adj. EPS by a CAGR of c.8% across the same period.”
Truslove gives ULS stock a Buy rating, along with a $41 price target that suggests the stock will gain 12% on the 12-month horizon. (To watch Truslove’s track record, click here)
As for the Street in general, the collective view puts a Strong Buy on ULS, based on 11 analyst reviews that include 9 Buys and 2 Holds. These shares are priced at $36.68, and their $40.30 average price target points toward a one-year gain of 10%. (See ULS stock forecast)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured 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.
