Upcoming IPOs - Addus, Vitamin Shoppe, AEI

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October 21, 2009

Since time is of the essence, today we’re going to offer a profile and a few thoughts on some upcoming initial public offerings you may have been mulling. That’s not to say our comments are the whole story, but they’ll at least get you thinking…. and noticing any red flags.

Addus HomeCare (ADUS) - Actually, the $60 million Adduss is looking to raise may well get them over a key hump that turns a decent company into a much more impressive one. The provider of home-based personal care and nursing services earned $6 million over the last twelve months on $252 million in revenues…. not exactly high margins (about 2.3%). However, the market cap as of right now is a mere $123.3 million. That translates into a P/E of 20.5, and a P/S ratio of about 0.5, both of which are at least palatable.

The prospect of Addus is compelling simply because the operation is proven and somewhat profitable. With just a little more working capital and top line growth, margins rates could swell dramatically.

Vitamin Shoppe (VSI) - There’s not much doubt about what this company does, but just en case, the Vitamin Shoppe is a retailer and direct marketer of - you guessed it - vitamins and related health supplements. Over the prior four audited quarters, the company did $641 million in sales, and turned that into profits of $11 million. Not good. And as such, the current market cap of $415 million, though small compared to revenue, is still well overpriced in comparison to earnings.

One could make the same argument for Vitamin Shoppe that we made for Addus…. That a little more money now could be parlayed into something that gets them over a margin hump. However, even a dramatic overhaul with the income statement could still paint an ugly picture of what’s going on here. Besides, though the vitamin and supplement industry have a massive customer base, the growth phase/craze/fad is settling down, leaving behind a lot of competition.

AEI (AEI) - AEI is a natural gas and power infrastructure company with operations in Latin America, Asia, and Europe. Over the prior twelve reported months, AEI has earned $273 million on $8,310 million in revenues. The numbers may be ugly at first glance, but they’re nothing unusual for a utility company… margins hover around 3.3%. It’s a fairly reliable 3.3% though.

The $750 million the company is looking to raise will be added to the current market cap of $3,914.2 million, meaning the new funds won’t terribly dilute what’s already in the float. On the other hand it forces one to question exactly why the company is bothering with raising capital. The answer - per the registration statement - is to pay down the bulk of their revolving credit line.

So, it’s just a mediocre utility company that one might scoop up if looking to diversify a base of dividend-paying stocks? That’s the only drawback we see with AEI, though it’s a big one - the company doesn’t pay dividends. So, what you’re getting is a little unusual…. a value-type of idea that wants to e a growth stock. We’re not sure if it’s the best or the worst of both worlds.

Other IPOs in the pipeline that are likely to issue in early November are….