Fiber Optic play & IPO of the week Exfo is priced at 26$ to be traded today
Good Luck
https://www.ipoguys.com/ipoofweek_IE4.asp
EXFO Electro-Optical Engineering (EXFO) is the IPOguys IPO of the week. This deal is one of eight IPOs we are covering this week on the IPOguys calendar. EXFO is the leading manufacturer of fiber-optic testing and measurement equipment for the telecommunications industry. Fiber-optic technology and networking has been "all the rage" these past few months with a few optical IPOs, such as New Focus and ONI Systems, opening up with large premiums from the offering price. EXFO is a Canadian firm with Agilent and JDS Uniphase as its main competitors here in the U.S.
The CEO of EXFO, Germain Lamonde, owns 99% of the shares prior to the offering. There are no major venture capitalists invested in this firm. EXFO had revenue of $42 million in 1999 with net earnings of $5.8 million. There's something refreshing, a company that actually makes a profit.
Merrill Lynch is the lead underwriter. Online investment bank Wit Soundview is co-manager and will be allocated shares to sell to individual investors. EXFO is offering 6,000,000 in the initial public offering. The price range is $20-$22.
IPOguys gives EXFO a 3-hammer "short term" and 4-hammer "long term" rating.
Happy Investing,
- The IPOguys
Analysis and Commentary below provided by:
David Menlow - President IPOfinancial.com
IPO Online Pick of the Week 6/19
Reviewed in the 6/20 issue of the IPO Frontline Newsletter
https://IPOfinancial.com/frontline.htm
With the recent burst from the starting gate for the IPO market, we had a difficult time choosing our IPO Pick of the Week as we were worried about stocks that could possibly open strongly then fade. It seems that there are a few new prospects to choose from but the blindfolded layup is in the fiber optic market.
There are many other pluses with this deal starting with Merrill Lynch as the lead manager. They haven't had a deal open with greater than a 6.50 point premium since the market blowoff in April. Well guess what, that's about to change with this offering. We also get a chance to showcase a company from Canada, which for the most part, has had a mediocre reputation in the IPO market. Now it's time for them to shine.
There is little if any need to substantiate the strong demand for fiber optic anything. The company cites that "forecasts have stated that Internet traffic will increase from 350,000 terabytes, or trillions of bytes, per month at the end of 1999 to more that 15 million terabytes per month in 2003." We think that estimate is low as the new initiative for a completely fiber optic Internet called the 'SuperNet', will intensify usage. With all that growth in usage and network deployments, how do companies maintain the integrity of their systems?
Let's make the move to test, measuring and monitoring instruments for the telecommunications industry. Although there are many other offerings waiting to get priced that deal with the core of the fiber optic market, the testing side of the market carries a lot of muscle for investors. When most of the investors are falling over themselves to get these fiber optic stocks at the IPO, there is usually not quite the heightened interest in those stocks dealing with the market that EXFO does.
The company is moving ahead very nicely at a growth rate of over 30% with profits, that's right, profits, that are runing about 13% of gross revenue. We do want to point out that insiders own the stock at $0.01 per share. Ordinarily, that would be a warning sign for a possible sell off of the stock at the expiration of the lockup provision but we are not phased by it. The 'insiders' are the 41 year old Chairman, President and CEO with virtually all of the shares of stock. We don't see this as the possible negative it could be as the company could just be hitting its stride after coming public and the company should end up as an acquisition target over time by another company. Basically, the company has a lot of intrinsic value in it and we feel the principals realize this also and are more
inclined to hold their stock.
EXFO is poised to be a strong performer both at the opening of trading and in the aftermarket. Adding to its appeal will be that it is not expected to be quite the runaway that could be the case for Stratos Lightwave coming from Lehman Brothers this week. As of this article's writing, we are expecting EXFO to be priced Thursday night for trading on Friday. This will be enough time to completely view the price performance of Stratos Lightwave as that stock is expected to be priced Monday night for trading Tuesday and could add some additional muscle to EXFO.
It is important to realize that the IPO market has been teasing investors over the last few months with the occasional good deal which have been in the fiber optic market. Over the last 2 weeks, more and more deals have been working much better than market expectations, including ours. This recent upsurge in strength for the IPO market can get out of control when a fiber optic stock hits the market. This week will continue to extend this broadened base of interest in IPOs. Our list of hot stocks has EXFO as one of the 2 IPOs out of the 22 expected to be priced this week with our highest opening premium projection.
The sudden turnaround of the IPO market is likely to make superstars out of a few mediocre issues this week. We suggest you stay with the genuinely strong issues and not get caught in what could be aggressive aftermarket trading that could quickly get ahead of itself. EXFO represents a wonderful investment that could get a nice spike at the opening but also a good endorsement for a long time to come after the initial IPO splash.
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David Menlow, President
IPO Financial Network david@ipofinancial.com
https://IPOfinancial.com
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