Profitable Trio Poised for Wall St. Debut
By Denise Duclaux
NEW YORK (Reuters) - Three companies aiming for a public listing this week hope their profitability -- unusual for initial public offerings -- will lure investors shell-shocked by a dismal stock market.
``It is going to be a very light December, but one thing that has changed is the caliber of the deal,'' said Irv DeGraw, research director at WorldFinanceNet.com. This month will rank as the slowest December in more than six years for the initial public offering market, he predicted.
Lab testing company Specialty Laboratories Inc., navigation device maker Garmin Ltd. and asset management firm W.P Stewart & Co. Inc. are tentatively slated to kick off the new month. All the companies tout profits -- an anomaly in a new-issues market dominated by start-ups that bleed red ink.
``I think profitability is really, really important,'' said Ward Morgenthau, senior vice president of sales at Laidlaw Global Securities. ``But I tend to think a lot of it depends on how the market will do (this) week. If you start draining the water out of the harbor, the ships are not going to float.''
Added Morganthau: ``Obviously I think an underwriter wants to step forward with his best shot, particularly since there are so many deals being withdrawn or going into the hole right away.''
Indeed, the fourth quarter is shaping up to be the weakest period of this year. Just 50 companies have gone public in the fourth quarter so far, less than half the number in each of the prior quarters this year, according to research firm Thomson Financial Securities Data. Nearly 60 percent of the new issues in the fourth quarter have sagged below their offering price, Thomson said.
Initial public offerings have followed the downward spiral of the broader market. Year to date, the Nasdaq composite index (.IXIC) has tumbled 35 percent, the Dow Jones industrial average (.DJI) has slipped 9.8 percent, and the Standard & Poor's 500 index (.SPX) has slumped 10.5 percent.
Specialty Laboratories, which develops and performs complex lab tests, rang in net income of $6.6 million on net revenues of $113.7 million for the nine months ended Sept. 30. The Santa Monica, Calif.-based company, which plans to trade under the symbol SP on the New York Stock Exchange, lost $2.4 million on net revenues of $96.7 million in the year-ago period.
``The leading deal is going to be Specialty Labs -- that's a top pick,'' DeGraw said. ``This is a very large company, a very substantial company.''
Garmin uses global positioning system technology to provide geographic location data through satellite communications. Its handheld and portable products are designed for use in wandering the outdoors and city streets.
It landed net income of $78.1 million on net sales of $260.1 million for the nine months ended Sept. 23. The Cayman Islands-based company, which expects to trade under the symbol GRMN on Nasdaq, posted net income of $43.6 million on net sales of $164.5 million for the comparable year-ago period.
``This one is a definite sleeper, because the pre-offering demand is very, very mild,'' DeGraw said. ``But I happen to like them anyway regardless of what the demand is. The fundamentals are incredible.''
W.P. Stewart posted net income of $94.8 million on revenues of $193.3 million for the year ended Dec. 31, 1999. The Bermuda-based company, slated to trade under the symbol WPL on the New York Stock Exchange, recorded net income of $72.6 million on revenues of $152.3 million in 1998.
``I think there is going to be a return to fundamentals,'' DeGraw said. ``We will be scrambling to find those companies that have significant profitability as well as strong growth prospects. You better be making money if you want to do a deal next year.''
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