IPO Market Starts to Heat Up Next Week

The IPO market is looking to pick up the pace next week; four deals are scheduled to price so far.

The deal I like the most next week comes from Leapfrog Enterprises (proposed symbol LF:NYSE). The company designs and develops technology-based educational products for children between preschool and eighth grade. Leapfrog's product line focuses on three areas: platforms such as portable hardware devices, content including interactive books and cartridges for those platforms, and stand-alone educational products for children too young to use platforms.

Leapfrog is setting itself up to be a major player in the technology-based educational market. According to the prospectus, Leapfrog has already sold more than 7 million platforms to date. From 1999 to 2001, the company's net sales increased from $71.9 million to $313.7 million, and net income increased from $1.5 million to $9.7 million. The company's stellar growth and product line make this deal the best place to put your money next week.

Cinemark

After filing just two months ago, Cinemark (proposed symbol CNK:NYSE) is hoping to enjoy some of the success in the IPO market that another motion picture exhibitor, Regal Entertainment Group (RGC - commentary - Cramer's Take), enjoyed earlier this year. Cinemark operates 3,014 screens in 278 theatres, many fewer than Regal's 5,885 screens and 561 theatres. For the past five years, Cinemark has increased revenue, but the down side is the company's erratic bottom line, which slipped into the red in the fiscal years ended 2000 and 2001.

However, the company has turned things around as of late. For the three months ended March 31, 2002, Cinemark had revenue of $226 million with a net income of $6.8 million, up from revenue of $196 million and a net loss of $2.6 million for the same period in 2001. I expect the deal to open at a small premium above issue price. At the time of this article, shares of Regal were trading 7% above its issue price.

Safety Insurance Group

Safety Insurance Group (proposed symbol SAFT:Nasdaq), a provider of private passenger automobile insurance, hopes to raise $85 million by selling 5 million shares for $16 to $18 a share. The Massachusetts-based company operates in the state's private passenger automobile insurance market and captured about 10.4% share of that market in 2001. Safety Insurance has enjoyed excellent growth in direct premiums over the past five years. Since 1997 the company has increased their dollar amount of direct written premiums by 73%, from $272.5 million to $471.9 million in 2001. The company's growth and positive bottom line should enable to deal to reach a premium of between 50 cents and a dollar on its first day of trading.

Republic

After shares of JetBlue (JBLU - commentary - Cramer's Take) closed its first day of trading 66% above issue price back in April, airline deals began to garner interest from investors. Unfortunately, the next airline deal, ExpressJet Holdings (XJT - commentary - Cramer's Take), wasn't as successful. Shares of XJT ended up closing its first day of trading flat at the $16 offering price but have since broken their issue price and closed Tuesday at $12.85.

Which brings us to Republic Airways Holdings (proposed symbol: RJET), a regional airline that relies heavily on its agreements with US Airways, American Airlines -- a unit of AMR -- and America West for passengers. Like Express Jet, Republic's revenue and income have been on the rise -- in the first quarter of this year, revenue increased by 38% over the same period last year, while net income improved 37%. However, this is still a risky industry, and I believe that there are better places than here to be next week.

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Michael Falbo is an analyst for ipoPros.com, a Boulder, Colo.-based research boutique (now a wholly-owned subsidiary of TheStreet.com) specializing in the analysis of equity syndicate offerings. This column is not meant as investment advice; it is instead meant to provide insight into the methods of new and secondary offerings. Neither Falbo nor his firm has entered indications of interest in any of the companies discussed in this column. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Falbo appreciates your feedback at [e-mail].