Every now and then an IPO (initial public offering) comes along that you know the minute it becomes public the demand is going to be strong. Some IPO’s go on to be huge winners like Chipotle (CMG, $118.28), Google (GOOG, $537.79) and Mastercard (MA, $236.00). Intrepid Potash (Ticker Symbol: IPI) is set to make its debut TODAY and only time will tell if it can match the returns of the those IPO’s. However, judging by the demand for fertilizer stocks in general, I wouldn’t be surprised if Intrepid gains 50% or even doubles on its first day of trading.
The company has raised the size and expected price range of the offering twice in the last week. Intrepid originally had priced the offering of 24 million shares at $24-$26. Then it was 30 million shares priced between $27-$29. Now the offering is 30 million shares at $32 a share. This puts proceeds at $960 million.
Intrepid had sales of $213 million in 2007, while earnings came in around $30 million. Once the stock does trade it will already carry a high multiple but investors are looking at what future earnings will be especially with the price of potash expected to approach $1000 per metric ton by the end of the year. It’s about $500 per metric ton right now.
Potash inventories remain low and the product is close to being sold out by all major world suppliers. Add China to the mix and you now have an even bigger market competing for a scarce commodity.
Of course all of this should mean good news for Potash (POT, $208.79, up $4.12) and the May 200 calls (PYPEX, $20.90, up $2.90) I profiled at $6.50 a contract. If Intrepid does as well as I think it is going to do, Potash should benefit as well.
Rick Rouse
Rick@OptionsMentoring.com
