One Oil Company Sell Shares, Pays Cash For Acreage, And More (IPO Digest)

Summary

An oil company makes a play to acquire more acreage.

Famous P/E firm KKR looks to make bank on US Foods latest IPO.

BioTime raises money in order to float speculative research and development trials. Look out below.

How I Invest in PO and IPO Opportunities - and a Word of Warning

Initial Public Offerings (IPOs) are famous for being great opportunities to juice the financial statements with what Benjamin Graham calls "window dressing". Investors have to be careful to appraise the real value and future prospects of any company in IPO.

My favorite way to invest in an IPO, or a Public Offering (PO), is to buy growth opportunities for a good price. IPOs present this opportunity when the pricing of the common shares aren't taking into account the real acceleration of revenue and sales that a company is destined to accomplish during the next one to two years of operations.

POs often cause a dip in share price that is psychologically important, and management gives specific information on what they're doing with the money raised. That information often flies under investor's radars but can present a strong hint as to the company's future success or failure. A gem of a PO is an opportunity to buy low, sell high on the back of smart investment by the company's management.

Pioneer Natural Resources (NYSE:PXD): Large Shale Acreage

Pioneer is a shale oil and gas producer with operations in the Permian basin and Eagle Ford. Their income, and stock price, have taken a hit along with the oil and gas industry as a whole.

On June 15th, the company announced a public offering of 5,250,000 shares of common stock. That's fewer than 3.5% of their outstanding shares, so the dilution of existing owner's positions is minimal.

With the $750-850 million the company will raise with this public offering, they intend to expand their footprint in the Spraberry/Wolfcamp play of the Midland Basin, West Texas. They are purchasing the acreage from Devon Energy Corp (NYSE: DVN).

Pioneer Natural Resources' strong balance sheet, including conservative debt levels and lots of cash, coupled with their property rights to significant proven shale oil reserves are the ideal combination for success in a recovering oil market.

The company's acquisitions of proven oil reserves during a down-market are bullish indicators for the company's common stock. Management is showing signs of intelligent investment. This company is a buy on future prospects of a rally in the spot price of oil.

You'll find more details in PXD's public offering prospectus and this articles from Callum Turcan (here) and this prior article from me (here) and their comments sections.

US Foods Holding Corp (NYSE:USFD): In And Out Of Public Trade

US Foods, previously known as US Foodservice, has consistently grown through an acquisition strategy since the early '90s.

They were a public company, then taken private, then again public through an IPO, and again taken private in 2007 by private equity firms Clayton, Dubilier & Rice, Inc and KKR (NYSE: KKR).

The P/E firms have launched another IPO for US Foods.

US Foods had a fully subscribed IPO, raising $1 billion cash. The stock is available for open trade since June 17th, 2016.

CD&R and KKR retain controlling stakes in the public company. Sell USFD because their volatile earnings show no sign of sustainable profits for equity investors.

More details in an article from Don Dion and another from me.

Comtech (NASDAQ:CMTL): Shareholders Take A Beating

The purpose of this public offering is to pay down a secured credit facility and reduce interest payments, this move may improve profitability for Comtech going forward. This alone won't be enough to bring the company's bottom line out of the red. Keep that in mind while you read the next paragraph...

Management priced this IPO at $14.00 per share when the stock was trading at $23.14, creating many disappointed investors.

The telecommunications business can be highly profitable, but Comtech is having trouble balancing expansion with cash to put into investor's pockets. They're losing money every quarter. Management is reducing the firm's debt load via this common stock offering, but the reduction in interest payments don't even qualify as water wings for this sinker.

Avoid Comtech until they create a product with real traction in the market place.

BioTime, Inc (NYSEMKT:BTX)

As of June 21st, 2016 BioTime's management sold 7,322,176 shares of common stock at $2.39 and raised net proceeds of $16.25 million.

BioTime is researching uses for stem cells and blood products. They have multiple subsidiaries that sell products as it is, but for an investment in BioTime to pay off their research and development pipeline will have to produce some profitable new products.

The company generated $1.8 million in gross profit during the 1st quarter of 2016, while selling and adminsitrative expenses were rang up at $11.8 million. They lost $15 million of investors cash from January 1st through March 31st, 2016.

All financial figures point to BioTime's management punting investors' money into a black hole.

Stay away from BioTime.

(Read more in this article from JMY Investments.)

A Critical Eye

Public offerings often present opportunities to get a look-see into what thinking is going on with Management. I'll continue giving you the straight dope with every update.

Comments welcome. Follow for future updates on these and other actionable investment analysis.

Disclaimer: This article represents the opinion of the author as of the date of this article. This article is based upon information reasonably available to the author and obtained from public sources that the author believes are reliable. However, the author does not guarantee the accuracy or completeness of this article. It is merely the author's interpretation of the information contained in the article. The author may close his investment position at any point in time without providing notice. The author encourages all readers to do their own due diligence. This is not a recommendation to buy or sell a security.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.