Riff on this: Fender's going public

Gareth Cattermole / Getty Images

Jimi Hendrix's 1965 Fender Stratocaster which was famously burnt by Hendrix in March 1967 at Finsbury Astoria.

By Martha C. White

When Fender goes public, investors likely will be buying with their hearts and not their heads.

Although Fender Musical Instruments Corp.'s swooping "F" is wildly?different from Facebook?s lowercase logo, and its pre-IPO runup is
absent the frenzy that accompanied Facebook?s public debut, analysts?say that the manufacturer of the famous Telecaster and Stratocaster
guitars does have some similarities to the social media giant.

Like?Facebook, Fender ? which plans to debut on the Nasdaq exchange under the ticker FNDR ? has name recognition that could boost the stock?price above what fundamentals would otherwise dictate.

"There is definitely some premium in it because it should be an easy sell," said?Scott Sweet,?senior managing partner at research firm?IPO Boutique. "Fender has a very large brand awareness and has had since the late 40s...?Looking at the financials, they're not impressive."

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In 2011, Fender managed to squeak out a profit of $19 million on sales of $701 million: not bad, but not headline-act good, either. The company's?guitars have been played by music titans such as?Eric Clapton and Jimi Hendrix ? who played a Fender Stratocaster during his iconic performance at Woodstock that was later bought at auction by Microsoft co-founder Paul Allen for $1.3 million. It set its share price at $13 to $15, which would raise $160.5 million and give the company a market cap of $395 million at the high end.
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?I wouldn?t go near this at the current valuation,? said Arnold Ursaner, managing director of CJS Securities. Ursaner says Fender?s weaker first-quarter numbers, plans to grow internationally into markets with shaky economies and reliance on troubled retailer Guitar Center for 16 percent of its sales are all challenges that could drag down the share price once the company goes public.?
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?It?s got a premium because of its branding and position in the industry,? said Francis Gaskins, president of research firm IPOdesktop.com. ?It has a broad and loyal customer following.?

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At least initially, that brand equity might matter more than fundamentals.?According to analysis of several dozen recent IPOs of consumer-focused companies from Ipreo, a market intelligence firm, "name brand" companies experienced a 26 percent first-day price bounce, compared to a 16 percent bounce for all consumer companies. Companies with well-known brands not only retained, but grew this lead: Six months after their IPOs, these companies had an average 47 percent increase in their share price, compared to a 14 percent increase for the broader consumer sector.

One plus for would-be investors is that the relatively small size of the offering should prevent the kind of volatility that marked Facebook?s IPO and subsequent trading days. ?It's going to be a much slower mover up or down,? Sweet said.?

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?But unlike many Facebook investors, who dreamed of flipping the stock on opening day and making a killing, analysts think retail investors motivated to buy Fender stock will do so for emotional rather than economic reasons and will hold it.

"It?s a mature company, it?s been around for a while," said?Nick Einhorn, research analyst at Renaissance Capital. "It?s not a company that represents an exciting growth industry... An investor would be coming at it from more of a value perspective."?For investors content to settle for slim margins and no dividend, at least for the time being, in exchange for owning a part of rock and roll history, this could be a match made in ? or maybe a stairway to ? heaven.?

Source: http://marketday.msnbc.msn.com/_news/2012/07/09/12644060-riff-on-this-fenders-going-public?lite

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