Some Facts on IPO Quiet-Period Endings

Ben Holmes has the market covered: Sundays: This Week in IPOs Tuesdays: This Week's Secondaries Wednesdays: Upcoming Lockup Expirations Fridays: The Quiet Period

Last week, I mentioned a recent study that we did on quiet-period endings and the effects they were having on the underlying stocks. I was rushed on Friday and on my way out of the office, so I threw up the article and a teaser telling readers to watch the TV show this weekend for the results of our study. Well, 214 of you wrote in to tell me that you cannot, for one reason or another, watch the show and could I please post the data to TheStreet.com.

Well, most of you said "please."

A few people called me names. One man accused me of being an unethical shill for the "United States Television Power Structure." I've not heard of this organization, but assume that it's a pretty ruthless group and that this comment was intended as an insult. Anyway, I already have the data and as so many of you did ask nicely, here it is.

Since April 1, the beginning of Q2, 54 IPOs have ended their quiet periods. All 54 of these have had research coverage initiated by one or more of their underwriters, usually within a day or two of the QP end.

The first-day gain on these IPOs was a solid 59%. This means that if you bought one share of each of these deals at the IPO price and then sold at the close on the first day of trading, you would have walked away with a 59% gain. So, we're not talking about a bad period in the IPO market -- the deals in this group were above-average performers.

Now, if you'd taken those very same stocks and bought one share of each at the close on the day the underwriters first recommended them, today you would be down more than 23%.

Of the 54 deals we researched:

• Fact: Not one received a negative or even a neutral opinion by the underwriters. Across the board we saw ratings of "buy," "strong buy," "market outperform," "near-term buy," "long-term buy." The underwriters are clearly and consistently recommending that you buy these recently issued stocks. There is no other way to interpret the data.

• Fact: Only 12 of these stocks have made gains since they were first recommended -- that means the analysts at the firms are batting barely 22%! And, the average gain on those 12 stocks was less than 18%. The recommendations that did result in gains posted relatively small returns.

• Fact: Forty-two of the 54 stocks we looked at -- 78% of them -- have lost value since they were recommended. The average loss on these stocks was close to -31%.

The bottom line is that investors who are taking the advice of the analysts on these deals as they exit their quiet periods are getting their teeth knocked out and handed to them in a cup. This is a crass way to put it, but the image I paint is almost as painful as the reality shown in our data.

There are a number of good-looking deals this week. Last week went well and I'm thinking, "Game On!" Let's take a look:

CENTILLIUM COMMUNICATIONS
IPO:	(CTLM:Nasdaq)	Provides technologies that enable broadband communications to the home and business enterprise.
Deal size:	4,000,000
Price range:	18.00 - 20.00
Led by:	Credit Suisse First Boston
My take: 5/1/2000 Price reduced from 22.00 - 24.00. Revenue is ramping hard, so are losses. DSL technology is so overdone in this IPO market. I'm thinking maybe a 1-point premium at best, but don't flip out if the deal fails to deliver.

FIRST HORIZON PHARMACEUTICAL
IPO:	(FHRX:Nasdaq)	Pharmaceutical company that markets and sells 11 brand-name prescription drugs.
Deal size:	3,800,000
Price range:	12.00 - 14.00
Led by:	Chase H&Q
My take: This is different from the biotech group in that they have products on the shelves. Operating right at break-even and showing respectable revenue growth. Drugs are working lately so there's probably a premium in this deal. Have reasonable expectations.

INTEGRATED CIRCUIT SYSTEMS
IPO:	(ICST:Nasdaq)	Designs, develops and markets silicon timing devices for a number of high-growth application segments.
Deal size:	12,500,000
Price range:	15.00 - 17.00
Led by:	Credit Suisse First Boston
My take: These people are building semiconductor components for some of the highest growth products on Earth. Revenue? Huge. Profitable? Very! If any deal deserves to work this week, it's this one.

NELVANA
IPO:	(NELV:Nasdaq)	Develops, produces, markets and distributes branded media content and related products.
Deal size:	3,750,000
Price range:	tba
Led by:	Bear Stearns
My take: Currently trades on the Toronto Stock Exchange. Non-EDGAR filing. I've seen nothing, I've heard nothing. I'm carrying no opinion.

NRG ENERGY
IPO:	(NRG:Nasdaq)	A leading global energy company.
Deal size:	28,170,000
Price range:	16.00 - 18.00
Led by:	Salomon Smith Barney
My take: I'm not real big on oil and gas deals right now. This one turns a profit, but I don't think it will turn many heads. I'll be generous and call it a small premium deal.

ONI SYSTEMS
IPO:	(ONIS:Nasdaq)	Develops, markets and sells all-optical networking equipment.
Deal size:	8,000,000
Price range:	21.00 - 23.00
Led by:	Goldman Sachs
My take: 5/18/2000 increased from 14.00 - 16.00. Optical networking technology is still the gold standard sector. The net income column scares the heck out of me, but I wouldn't bet against this deal.

QUALSTAR
IPO:	(QBAK:Nasdaq)	Designs, develops, manufactures and sells high-quality automated magnetic tape libraries.
Deal size:	2,500,000
Price range:	7.00 - 9.00
Led by:	First Security Van Kasper
My take: 5/17/2000 shares reduced from 3,250,000 and price reduced from 10.00 - 12.00. UPDATE: This one has been dragged out for the last few weeks and we're wondering if it will get done this time. Don't expect fireworks, but it should work for a point or two.

SONUS NETWORKS
IPO:	(SONS:Nasdaq)	Provider of voice infrastructure products for the new public network.
Deal size:	5,000,000
Price range:	19.00 - 21.00
Led by:	Goldman Sachs
My take: Mike Falbo (my cohort here) likes this deal. He pulled New Focus out of his hip pocket recently and called it a big performer. I tend to agree with him on this one. Serious customer list and a very promising portfolio of technologies.

STANFORD MICRODEVICES
IPO:	(SMDI:Nasdaq)	Designer and supplier of high-performance radio frequency components for communications equipment.
Deal size:	4,000,000
Price range:	12.00 - 14.00
Led by:	Deutsche Banc Alex. Brown
My take: Balance sheet is a bit heavy with red ink, but the company has a toe-hold in some of the highest growth communications products markets. DB Alex. is no slouch either. I'm looking for a decent premium right out of the box.

UNIVERSAL COMPRESSION HOLDINGS
IPO:	(UCO:Nasdaq)	Natural gas compression services company.
Deal size:	7,000,000
Price range:	21.00 - 23.00
Led by:	Merrill Lynch
My take: Another oil and gas deal. This one's losing a fair amount of money; among O&G IPOs, NRG looks better.

URBAN COOL NETWORK
IPO:	(UBN:Nasdaq)	Operater of an online network targeted to the urban consumer that provides a forum for communications, information and electronic commerce.
Deal size:	2,000,000
Price range:	9.00 - 11.00
Led by:	Kashner Davidson
My take: No revenue. None. I went to the Web site and tried to look around but most of the links were not working -- not very "cool." I could find only one deal by this underwriter in my archives, and it was down 22% on its first day of trading.

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