Goldman Sachs: 3 IPO Stocks to Snap Up Now

After a week that saw loss after loss, the market bounced back. Yesterday, the Dow Jones index, which houses 30 blue-chip names, posted a record one-day point change. Putting an end to its seven-day losing streak, the index climbed 1,290 points higher, its largest single-day increase since December 2018. As for the other two major U.S. indexes, both the S&P 500 and the NASDAQ notched their biggest percentage gains in the last year.

Having said that, as the number of coronavirus cases around the world approaches 90,000, Wall Street isn’t sure that better days are ahead…

During an interview, Cowen’s head of market strategy Chris Pollard stated, “We’re not completely out of the woods…The market by and large had been telling us this situation was going to deteriorate, [and] equities only caught on to that last week.” He added that any growth in the short-term is “unlikely to hold.”

Before rushing to sell-off holdings, investing firm Goldman Sachs reminds investors that compelling opportunities can still be found, pointing specifically to initial public offering (IPO) stocks. Using TipRanks’ Stock Screener, we were able to pinpoint 3 newly public names that are Buy-rated and backed by the analysts from Goldman Sachs as well as the rest of the Street. To top it all off, each stands to see some serious gains in the next year.

Casper Sleep (CSPR)

Online mattress retailer Casper Sleep burst onto the scene just last month on February 6, but it has already attracted significant attention. In its first day on the public market, the stock gained 12%, adding $2.50 to the $12 IPO price.

While the market cap now lands at $358.6 million, at one point while the company was privately-held, it earned unicorn-status thanks to its $1.1 billion valuation. This drop has spurred some concern among investors, but Goldman Sachs remains optimistic about CSPR’s long-term prospects.

Writing for the firm is analyst Alexandra Walvis, who points out that significant health and wellness-based tailwinds have steadily been benefiting the global sleep product market. Additionally, even though the space is known for being highly competitive, Walvis is expecting to see a “more rational environment” in the future. She added, “CSPR is uniquely positioned as a holistic sleep brand, with product and marketing creating a powerful connection with consumers and potential for a strong moat.”

On top of this, Walvis cites its omnichannel strategy as a key point of strength. According to her estimates, the analyst notes that CSPR’s store count is expected to reach 180 by 2022, up from 60 as of the end of full year 2019. Based on solid unit economics, this should fuel substantial growth in terms of sales and earnings. It also doesn’t hurt that growth in brand-right partners such as Target and Costco as well as other retailer additions stand to boost wholesale sales, with sales from this segment predicted to increase from 20% to 33% of total sales.

Given its attractive valuation and the fact that its marketing spend leverage has set it up for profitability, Walvis believes CSPR is bound for greatness. “While we recognize execution risk and a competitive marketplace, we believe these concerns are more than adequately reflected in shares given depressed valuation, and see upside to shares from current levels,” she commented.

In line with her bullish thesis, Walvis kicked off her CSPR coverage by publishing a Buy recommendation. Along with the bullish call, she set a $16 price target, implying 77% upside potential. (To watch Walvis’ track record, click here)

Looking at the consensus breakdown, 5 Buys and 3 Holds assigned in the last three months make the Street consensus a Moderate Buy. At $13.75, the average price target puts the upside potential at 52%. (See Casper Sleep stock analysis on TipRanks)

Reynolds Consumer Products (REYN)

Reynolds has made a name for itself as one of the top household products providers, and is the powerhouse behind the famous Reynolds Wrap aluminum foil and Hefty brand. Its January 30 market debut was certainly impressive, raising $1.2 billion. As the IPO was the first billion-dollar listing of 2020 in the U.S., it’s no wonder Goldman Sachs’ Jason English is excited about REYN.

In a recent research note, English told clients, “We believe REYN is on the verge of driving an inflection in volume/mix driven sales growth while at the same time benefiting from deflationary input costs. As such, we see strong EBITDA and free cash flow growth going forward. We also take comfort in REYN’s unique defensive traits, which should position the company to deliver consistent, albeit modest, growth through various economic cycles.”

According to English, its dominant positioning in the market, more than 65% of sales come from categories that REYN is the top player in, suggests that it can maintain “relatively healthy” margins. Not to mention the company is particularly strong when it comes to private label goods, which could limit risk in times of duress for consumers.

The analyst also argues that unlike other consumer staples names, REYN is tied to industrial commodities. “Thus in times of economic slowdown, we anticipate REYN’s input costs to decline, providing the opportunity for outsized EBITDA growth,” English noted.

As for sales growth, English believes that “its recent distribution wins in the Home Improvement sector and its easy comparisons in 1H20” could drive organic sales growth of 0.8%-plus, up from -3.5%.

It should come as no surprise, then, that English initiated coverage by placing a Buy rating on the stock. Should his $36 price target be met, shares could be in for a twelve-month gain of 28%. (To watch English’s track record, click here)

What do other analysts think is in store for REYN? As it happens, out of 8 total analysts that have issued a recent review…

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