Broken IPOs, Part II

This is the second part of a three-part look at poorly performing IPOs from the last three years. Part I of the series looked at the IPO crop in 2008, and Part III will look at the IPOs from 2006. In each case, the tables include companies that are trading below their initial offering prices and have market caps above $400 million.

The number of new IPOs hitting the market in 2007 was slightly below average. Activity earlier in the year was robust, but bankers pulled many deals after the market's swoon in August 2007. Many of those deals are still waiting their turn to line up at the starting gate.

Although a number of IPOs have performed well since their debut last year, most are underwater, according to our internal analysis of all 2007 IPOs with market caps that are still above $400 million. After researching the class of 2007's laggards, we have found some very intriguing values. Stick around for the end of this piece to see three badly scarred names in the financial services sector that could be poised for a rebound.

Don't Touch the Popcorn Yet

The addition of commercials and static ads before movies begin must be the most annoying recent development in entertainment. But it's a lucrative opportunity for National CineMedia (NCMI - commentary - Cramer's Take) and privately held Screenvision. The companies control 90% of the market, and NCMI is generally regarded as the higher-quality producer of these "pre-feature ads," while Screenvision generally offers lower prices to advertisers.

Those distinct market strategies help explain why shares of NCMI touched a 52-week low on Friday and fetch less than 60% of the February 2007 IPO price. Simply put, Screenvision's bargain-pricing schemes led NCMI to lose some business over the last few quarters.

However, in the quarters ahead, NCMI should start to benefit from a closer coordination with Loew's Theaters, as that cinema operator is being integrated by AMC Entertainment. (Regal Entertainment (RGC - commentary - Cramer's Take), AMC and Cinemark Holdings (CNK - commentary - Cramer's Take) own 55% of National CineMedia and have a vested interest in the company's success.)

The integration with Loew's Theaters should boost sales for NCMI in the fourth quarter and beyond. Moroever, the company's high production values for its spots should start to hold greater appeal to advertisers as they scramble to make more lasting impressions on consumers. According to a recent Roper study, 73% of respondents remembered the ads they saw before a movie started, compared with 13% is similar respondents after a TV broadcast.

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David Sterman has been an equity analyst and financial journalist for 15 years, most recently serving as Director of Research at Jesup & Lamont Securities.