Last year proved to be a record-breaking year for initial public offerings (IPOs). According to data from IPO watchers at Renaissance Capital, IPOs in the United States raised more than $142 billion in proceeds, amid a flood of government stimulus, soaring valuations, and low-interest rates.
However, the interest rate environment will reverse soon, given Fed’s hawkish stance to deal with the inflationary pressure. According to Bank of America Corp. (BAC) economists, the Federal Reserve is expected to execute seven quarter percentage point rate increases in 2022. This could lead to a continued market retracement.
Which is why you want to look to invest in fundamentally sound stocks, such as recent IPOs Organon & Co. (OGN), Victoria's Secret & Co. (VSCO), and LegalZoom.com, Inc. (LZ). Wall Street is forecasting that these stocks will rally by more than 33% in the next 12 months.
Organon & Co. (OGN)
OGN is a science-based pharmaceutical company that delivers health solutions through its portfolio of prescription therapies pertaining to women’s health and biosimilars. The company started trading on May 14, 2021, on a ‘when-issued’ basis. OGN announced its launch as a separate company from Merck & Co. Inc. (MRK) on June 3, 2021.
On January 5, OGN announced that the U.S. Food and Drug Administration (FDA) has accepted for review the supplemental Biologics License Application (sBLA) for a citrate-free, high-concentration formulation of SB5. The company expects to commercialize SB5 in the U.S. on or after July 1, 2023, which should bolster its revenue stream.
On December 13, OGN announced the closure of the acquisition of Forendo Pharma, a clinical-stage drug development company. The acquisition should expand the company’s operative capability and enable treatment options for endometriosis.
For the nine months ended September 30, OGN’s net cash flows provided by operating activities from continuing operations increased 17.4% year-over-year to $2.11 billion, while total cash and cash equivalent balance rose 164.6% from the prior-year period to $1.01 billion.
Analysts expect OGN’s revenue to increase 1.2% year-over-year to $6.35 billion for the fiscal year 2022.
The stock has gained 8.3% over the past month and 7.3% over the past five days to close yesterday’s trading session at $32.99.
Two Wall Street analysts rating OGN have rated it Buy. The 12-month median price target of $44.00 indicates a 33.4% potential upside. The price targets range from a low of $42.00 to a high of $46.00.
Victoria's Secret & Co. (VSCO)
VSCO operates as a specialty retailer of women’s intimate, personal care beauty products worldwide. The company’s offerings include lingerie, casual sleepwear, swimwear, and athleisure. It went public on August 3, 2021, after separating from Bath & Body Works Inc. (BBWI).
On January 25, VSCO announced a partnership agreement with Regina Miracle International (Holdings) Limited, pertaining to its existing company-owned business in China. The company aims to grow its China business by forming a joint venture (JV). VSCO is also expected to receive $45 million from Regina Miracle as consideration for its investment in the JV.
On December 29, VSCO entered into an accelerated share repurchase agreement with Goldman Sachs & Co. LLC for repurchasing $250 million of its common stock. CEO Martin Waters said, “We believe this share repurchase reflects our confidence in the Company and is another step on our journey to create long-term, sustainable value for our shareholders.”
For the fiscal third quarter ended October 30, VSCO’s net sales increased 6.5% year-over-year to $1.44 billion. Adjusted operating income rose 10.7% from the prior-year quarter to $107.91 million, while adjusted net income improved 3.7% from the same period the prior year to $75.21 million.
The consensus EPS estimate of $7.26 for fiscal 2023 indicates a 2.7% year-over-year increase. Likewise, the consensus revenue estimate for the same year of $7 billion reflects an improvement of 3% from the prior year.
Over the past three months, the stock has gained 15.2% to close yesterday’s trading session at $57.41. It has gained 3.4% over the past month.
Of the seven Wall Street analysts rating VSCO, five have rated it Buy, while two have rated it Hold. The 12-month median price target of $76.43 indicates a 33.1% potential upside. The price targets range from a low of $54.00 to a high of $100.00.
LegalZoom.com, Inc. (LZ)
LZ is an online platform operator for legal and compliance solutions in the United States. The company platform’s offerings include business formations, creating estate planning documents, and protecting intellectual property. The company went public after a conventional IPO process on June 30, 2021.
On November 10, LZ announced its acquisition of Earth Class Mail, Inc., a virtual mailbox solution for small businesses. The virtual mailbox feature is expected to complement LZ’s Registered Agent suits of services and deliver significant platform synergies for addressing operational needs for small businesses.
On November 8, LZ announced its collaboration with Amazon.com, Inc. (AMZN) Business for allowing small business owners, who are Business Prime members, to save money on business formation services from LZ. This collaboration might be beneficial for the company by expanding its customer base.
LZ’s revenue increased 12.4% year-over-year to $147.88 million in the fiscal third quarter ended September 30. Gross profit improved 14.7% from the same period the prior year to $100.61 million. For the nine months ended September 30, the company’s cash, cash equivalents, and restricted cash equivalent balance came in at $310.70 million, up 123.9% from the prior-year period.
Street EPS estimate for the fiscal year 2022 of $0.17 reflects a rise of 1,800% year-over-year. Likewise, Street revenue estimate of $686.61 million for the same period indicates an increase of 19.1% from the same period the prior year.
LZ’s shares have gained 2.9% over the past month and 6.6% over the past five days to close yesterday’s trading session at $16.54.
Four out of the six Wall Street analysts rating LZ have rated it Buy, while the other two have rated it Hold. The 12-month median price target of $30.17 indicates an 82.4% potential upside. The price targets range from a low of $17.00 to a high of $40.00.
OGN shares were trading at $33.33 per share on Wednesday afternoon, up $0.34 (+1.03%). Year-to-date, OGN has gained 9.46%, versus a -3.83% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
3 Recent IPOs That Wall Street Predicts Will Rally 33% or More StockNews.com
