Goldman Sachs: 3 IPO Stocks to Snap Up Now
After a week that saw loss after loss, the market bounced back. Yesterday, the Dow Jones index, which houses 30 blue-chip names, posted a record one-day point change. Putting an end to its seven-day losing streak, the index climbed 1,290 points higher, its largest single-day increase since December 2018. As for the other two major U.S. indexes, both the S&P 500 and the NASDAQ notched their biggest percentage gains in the last year.
Having said that, as the number of coronavirus cases around the world approaches 90,000, Wall Street isn’t sure that better days are ahead. During an interview, Cowen’s head of market strategy Chris Pollard stated, “We’re not completely out of the woods…The market by and large had been telling us this situation was going to deteriorate, [and] equities only caught on to that last week.” He added that any growth in the short-term is “unlikely to hold.”
Before rushing to sell-off holdings, investing firm Goldman Sachs reminds investors that compelling opportunities can still be found, pointing specifically to initial public offering (IPO) stocks. Using TipRanks’ Stock Screener, we were able to pinpoint 3 newly public names that are Buy-rated and backed by the analysts from Goldman Sachs as well as the rest of the Street. To top it all off, each stands to see some serious gains in the next year.
Casper Sleep (CSPR)
Online mattress retailer Casper Sleep burst onto the scene just last month on February 6, but it has already attracted significant attention. In its first day on the public market, the stock gained 12%, adding $2.50 to the $12 IPO price.
While the market cap now lands at $358.6 million, at one point while the company was privately-held, it earned unicorn-status thanks to its $1.1 billion valuation. This drop has spurred some concern among investors, but Goldman Sachs remains optimistic about CSPR’s long-term prospects.
Writing for the firm is analyst Alexandra Walvis, who points out that significant health and wellness-based tailwinds have steadily been benefiting the global sleep product market. Additionally, even though the space is known for being highly competitive, Walvis is expecting to see a “more rational environment” in the future. She added, “CSPR is uniquely positioned as a holistic sleep brand, with product and marketing creating a powerful connection with consumers and potential for a strong moat.”
On top of this, Walvis cites its omnichannel strategy as a key point of strength. According to her estimates, the analyst notes that CSPR’s store count is expected to reach 180 by 2022, up from 60 as of the end of full year 2019. Based on solid unit economics, this should fuel substantial growth in terms of sales and earnings. It also doesn’t hurt that growth in brand-right partners such as Target and Costco as well as other retailer additions stand to boost wholesale sales, with sales from this segment predicted to increase from 20% to 33% of total sales.
Given its attractive valuation and the fact that its marketing spend leverage has set it up for profitability, Walvis believes CSPR is bound for greatness. “While we recognize execution risk and a competitive marketplace, we believe these concerns are more than adequately reflected in shares given depressed valuation, and see upside to shares from current levels,” she commented.
In line with her bullish thesis, Walvis kicked off her CSPR coverage by publishing a Buy recommendation. Along with the bullish call, she set a $16 price target, implying 77% upside potential. (To watch Walvis’ track record, click here)
Looking at the consensus breakdown, 5 Buys and 3 Holds assigned in the last three months make the Street consensus a Moderate Buy. At $13.75, the average price target puts the upside potential at 52%. (See Casper Sleep stock analysis on TipRanks)
Reynolds Consumer Products (REYN)
Reynolds has made a name for itself as one of the top household products providers, and is the powerhouse behind the famous Reynolds Wrap aluminum foil and Hefty brand. Its January 30 market debut was certainly impressive, raising $1.2 billion. As the IPO was the first billion-dollar listing of 2020 in the U.S., it’s no wonder Goldman Sachs’ Jason English is excited about REYN.
In a recent research note, English told clients, “We believe REYN is on the verge of driving an inflection in volume/mix driven sales growth while at the same time benefiting from deflationary input costs. As such, we see strong EBITDA and free cash flow growth going forward. We also take comfort in REYN’s unique defensive traits, which should position the company to deliver consistent, albeit modest, growth through various economic cycles.”
According to English, its dominant positioning in the market, more than 65% of sales come from categories that REYN is the top player in, suggests that it can maintain “relatively healthy” margins. Not to mention the company is particularly strong when it comes to private label goods, which could limit risk in times of duress for consumers.
The analyst also argues that unlike other consumer staples names, REYN is tied to industrial commodities. “Thus in times of economic slowdown, we anticipate REYN’s input costs to decline, providing the opportunity for outsized EBITDA growth,” English noted.
As for sales growth, English believes that “its recent distribution wins in the Home Improvement sector and its easy comparisons in 1H20” could drive organic sales growth of 0.8%-plus, up from -3.5%.
It should come as no surprise, then, that English initiated coverage by placing a Buy rating on the stock. Should his $36 price target be met, shares could be in for a twelve-month gain of 28%. (To watch English’s track record, click here)
What do other analysts think is in store for REYN? As it happens, out of 8 total analysts that have issued a recent review, 7 were bullish, making the consensus rating a Strong Buy. With an average price target of $35.63, the upside potential lands just slightly below English’s forecast at 26%. (See Reynolds stock analysis on TipRanks)
PPD (PPD)
Switching gears now, the last stock on our list is a contract research organization (CRO) that offers drug development, laboratory and lifecycle management services, serving names inhabiting the pharmaceutical, biotech, medical device, academic and government spaces.
The company also had its first day of trading on February 6, pricing shares at $27 each. After raising $1.86 billion, it’s safe to say the Street has been thoroughly impressed.
Goldman Sachs analyst Robert Jones argues that “PPD shares in our view represent an opportunity to buy a top-tier CRO with plenty of momentum against a healthy demand backdrop.” His bullish thesis is driven partly by the fact that PPD has been a key player in the CRO space for several years.
On top of this, when you look at other CROs, Jones thinks that the company’s unique site and patient data strategy over the previous seven years has made it stand out. “As biopharma selection criteria of CROs moves further towards accelerating patient recruitment, we expect PPD’s AES capabilities to enable differentiation. In the RWE space, where expect more rapid industry growth, PPD has a leading franchise (Evidera), which screened as a top-2 player in our survey,” he said.
Adding to the good news, the Goldman Sachs analyst sees the CRO industry as being “healthy” thanks to both the public and private funding of biotech over the past few years. With its industry-leading labs as well as the assumption that bookings growth will most likely increase, Jones also expects modest EBITDA margin expansion and debt refinancing to spur double-digit EPS growth.
Jones concluded by noting, “With solid bookings growth, a year of top-line acceleration in 2019 with further potential upside to numbers, and a path to significant deleveraging, we see a core mid/large-cap exposure to an attractive end-market.” It makes sense, then, that the four-star analyst started off his PPD coverage by issuing a bullish call and setting a $34 price target. This conveys his confidence in PPD’s ability to surge 26% over the next twelve months. (To watch Jones’ track record, click here)
In general, the rest of the Street is on the same page. With 12 Buys and a single hold received in the last three months, the word on the Street is that PPD is a Strong Buy. In addition, the $33.29 average price target brings the upside potential to 24%. (See PPD stock analysis on TipRanks)
