5 IPOs that might be worth a look

By BusinessWeek

The burdens of being a publicly held company in the post-Enron era are well-known, but with U.S. equity markets showing strength, as witnessed by the record highs reached by the Dow Jones Industrial Average ($INDU), lots of outfits are still diving into the public pool.

Certainly not all recent offerings have been great successes -- the Vonage (VG, news, msgs) debacle is still recent enough to send a chill down investors' spines -- but the market has seen some impressive debuts lately. The tech-hardware company Riverbed Technology (RVBD, news, msgs) and cosmetics outfit Bare Escentuals (BARE, news, msgs) each posted handsome gains on their first day of public trading.

These strong performances have investors prowling for the next big deal. But among the dozens of names in the initial-public-offering hopper, which ones should investors check out? This week, BusinessWeek's "Five for the Money" takes a look at some of the more attractive IPO prospects on the horizon with a focus on companies that could deliver results long after they start trading. As ever, investors should do their homework and be aware of the potential pitfalls.

1. eHealthInsurance

Through its Web site, eHealthInsurance markets health insurance from a broad spectrum of providers. The company focuses on plans for families, individuals and small businesses, a sector that could soar given the growing ranks of people who lack insurance or pursue independent career paths in which a corporate-sponsored plan simply isn't an option. On the Mountain View, Calif., company's site, customers can browse health plans from different insurers to find one that best suits their needs and budgets.

The company's revenue increased from $9.3 million in 2001 to $41.8 million in 2005, and its net loss shrank from $19.8 million to $400,000. For the six months ending in June, the company's results bounded into the black, as it reported net income of $2.7 million on revenue of more than $27 million.

The company's commissions from insurers generally continue for as long as a policy is active. Tom Taulli, the founder of InvestorOffering.com and an author who has written on IPOs, sees eHealth as a growth story. Because insurance prices are heavily regulated, eHealth faces virtually "no price competition," and Taulli says its business relationships and technology leave it well-positioned in this expanding market. The company expects the offer to price between $10 and $12 per share in a deal led by Morgan Stanley (MS, news, msgs) and Merrill Lynch & Co. (MER, news, msgs).

2. AeroVironment

"Drone" is usually considered a pejorative term, but not at this Monrovia, Calif., company. AeroVironment designs and sells small unmanned aircraft for use in military reconnaissance and civilian operations such as monitoring wildfires. With craft capable of using infrared and electro-optical scanners, the company believes it is well-positioned to benefit from the Defense Department's push to transform the military into a more agile force.

Paul Bard of IPOHome.com says the company stands to benefit from an extended war in Iraq. And with the defense industry's acquisitive nature, AeroVironment may be a company "that some of the big guys would be keeping an eye on."

AeroVironment filed for an IPO in late September and plans to use the proceeds of the Goldman Sachs–led deal for purposes including research and development as well as "opportunistic" acquisitions. Already it has ramped up, boosting revenues from $47.7 million for the year ending in April 2004 to $139.4 million for 2006. During that period, net income increased from $2.2 million to $11.4 million.

3. Animal Health International

Animal Health, of Westlake, Texas, says it is the largest U.S. distributor of animal health-care products. It sells upward of 35,000 products, from pharmaceuticals to sanitizers. Including supplies for farm animals and pets, the company says the market for animal health products climbed from $4.8 billion in 2003 to $5.3 billion in 2005. With more than 62,000 customers, including retailers and veterinarians, the company could capitalize on further sector expansion.

Animal Health plans to use proceeds from the JPMorgan Chase (JPM, news, msgs)-led offering to pay off debt and perhaps make some acquisitions. For the year ending in June 2006, the company reported sales of $571.1 million, up more than 26% since 2003. As with AeroVironment, estimated terms for the deal are not yet available. But at the right price, it could be a strong proposition.

4. Acme Packet

No, it's not part of a dastardly scheme cooked up by Wile E. Coyote. Acme Packet's Net to Net product line helps traffic between Internet protocol networks flow more smoothly to ensure quality performance in real-time communications, such as voice. It's an area with room to grow, as an increasing amount of telephone traffic travels over the Internet instead of through traditional land lines. The Burlington, Mass., company's customers include KT Corp. (KTC, news, msgs), a South Korean telecommunications company, and Brasil Telecom (BRP, news, msgs).

IPOHome.com's Bard says that as the company is growing, "the numbers are pretty impressive." For the six months ending in June, the company reported net income of $11.3 million on revenue of $38.1 million. For calendar year 2005, it had a net loss of $35,000 on revenue of $36.1 million. With lead underwriters Goldman Sachs (GS, news, msgs) and Credit Suisse, Acme anticipates pricing the shares between $6.50 and $7.50.

Bard sees parallels in Acme with tech outfit Riverbed's recent offering. That company, which makes devices to accelerate data transmission across wide area networks, or WANs, saw shares rise about 57% on their first trading day, Sept. 21. And the stock has marked up further gains even though Riverbed isn't profitable.

5. SAIC

This is the biggest and best-known name in the bunch. With revenue of almost $7.8 billion for the year that ended Jan. 31, SAIC is not your typical IPO. The San Diego, Calif., outfit offers engineering, scientific and logistic products and services, primarily to the U.S. government. With product groups including transport and software, its clients include the Defense Department and other agencies. Led by Morgan Stanley (MS, news, msgs) and Bear Stearns (BSC, news, msgs), the company expects shares to price between $13 and $15.

Because the company is already well-established, InvestorOffering.com's Taulli sees the company as more of a long-term play than a chance for quick cash. Despite the headlines that accompany big debuts, he doesn't see a "barn burner." So investors shouldn't fret if they can't get in on Day One. "These types of businesses will be needed for a long time," he said.