Stocks to buy

Stocks with secondary offerings took off in the second quarter. According to Bloomberg, there were $42.7 billion in follow-on offerings in the second quarter, the most since Q3 2021. More importantly, this was 16% higher than in Q1 2023 and double the amount from Q2 2022. 

What is going on?

The 318 deals completed in the second quarter were the highest in 24 months. That’s got investors excited about the future possibilities. 

“Now that public issuers are generally more comfortable with their current market valuations, it is easier to discuss an offering and focus on what is the right discount to sell their shares,” said JPMorgan Chase’s Keith Canton. “From an investor point of view, there is a fear of missing out on the rally.”

There’s no question that the S&P 500’s strong performance in the first half of the year increased the appetite for investing in secondary offerings. 

Here are three stocks signaling confidence with their recent secondary offerings.

Nextracker (NXT)

Source: Shutterstock

First up is Nextracker (NASDAQ:NXT), a global leader in solar trackers that allow solar panels to follow the sun as it moves across the sky. Nextracker went public in February, selling 26.6 million shares to investors at $24 each. NXT stock is up 63% since its IPO.

On June 30, the company did a secondary offering, selling 16.5 million shares at $36.50. The company sold 14.2 million shares, raising $552 million in net proceeds. In addition, an affiliate of TPG (NASDAQ:TPG) sold 2.29 million shares. Underwriters also exercised their option to buy an additional 1.65 million shares.

Nextracker will use the net proceeds to buy 15.6 million Nextracker LLC common units from Yuma Inc., an indirect Flex (NASDAQ:FLEX) subsidiary and a TPG affiliate. Nextracker was taken public by Flex, its former parent. Flex didn’t sell any shares in the secondary offering, so it still owns 51.7% of the company

Nextracker is scheduled to report results for its fiscal first quarter on July 26. For its previous fiscal year, Nextracker generated revenue of $1.9 billion, up 30%, with adjusted net income of $153.1 million, 119% higher than a year earlier.

In April, I said Nextracker was an IPO stock to watch. After its secondary offering, it’s still an IPO stock worth owning for the long haul.

Ryman Hospitality Properties (RHP)

Source: Vitalii Vodolazskyi / Shutterstock

Ryman Hospitality Properties (NYSE:RHP) is a real estate investment trust (REIT) known for owning iconic country music assets such as Nashville’s Grand Ole Opry and Ryman Auditorium. 

However, the company’s hospitality segment generates most of the REIT’s revenue and operating profits.  In Q1, the REIT had revenue of $491.7 million. Hospitality accounted for 86%, while entertainment accounted for 14%. As for its operating income of $105.7 million, the split was 91%/9% in hospitality’s favor. 

On June 9, the company announced the closing of its secondary offering. It sold 4.43 million shares of its stock at $93.25, raising net proceeds of $396 million. The sale included the underwriters exercising their option to buy an additional 577,500 shares. 

The REIT will use the net proceeds as part of its $800 million purchase of the JW Marriott San Antonio Hill Country Resort & Spa in San Antonio, Texas. In addition to the equity offering, Ryman sold $400 million in senior notes due in June 2028, carrying an annual interest rate of 7.25%. The bond sale was $100 million higher than originally intended. 

The JW Marriott hotel acquired is located on 640 acres, has 1,002 rooms, and 268,000 square feet of indoor and outdoor meeting and event space. Golfers will like it. It has two 18-hole courses, one designed by Greg Norman and the other by Pete Dye. The resort currently generates $63 million in annual adjusted EBITDA for real estate (EBITDAre).

In November, I suggested that RHP is an up-and-coming stock to buy for the long haul. With shares up 17.5% year to date, I haven’t changed my tune. 

Intapp (INTA)

Source: Shutterstock

The smallest of the three secondary offerings was done by Intapp (NASDAQ:INTA), a provider of cloud-based software solutions for legal and financial services firms. 

Founded in 2000, it has more than 2,250 clients, including 96 of the top 100 American law firms, seven of the top eight global accounting firms, and 1,400 private capital and investment firms, according to the company. Of its clients, 572 spend more than $100,000 annually.

Intapp priced its secondary offering on May 17, selling 6.25 million shares at $36.50 with an additional 937,500 available to the underwriters. The company sold 2 million shares, raising gross proceeds of $73 million. The other 4.25 million shares, plus the potential over-allotment, were sold by insiders, including Chief Executive Officer (CEO) John Hall. 

Intapp is the only one of today’s secondary offering stocks that is losing money on a GAAP basis. Through the nine months ended March 31, it had a net loss of $58 million, but this was down from $78 million in the comparable year-ago period. However, on a non-GAAP basis, it earned $5.1 million, and revenue was up 30.4% year over year to $256.3 million.

Intapp expects revenue of at least $349 million in fiscal 2023, implying 28.5% growth, with a non-GAAP operating profit of $9.5 million at the midpoint of its guidance. 

As its customer base, revenue and profits continue to grow, today’s $40 share price could look very cheap in a few years. 

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.

Articles You May Like

Faraday Future (FFIE) Stock: To the Moon or Straight to Zero?